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March 09, 2007


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It has been my experience that DRIPs are no more complicated to set up than a regular brokerage account. It's merely a choice to be made when establishing: cash dividends or reinvestment. I believe it's all or nothing with the account though, not a per-investment decision.

But the way I see it, DRIPs are too much trouble outside of an IRA. If the average company/fund pays a dividend quarterly, that's 4 transactions per year on which you have to keep track of the basis. If you're well-organized with other programs like Sharebuilder or dollar-cost averaging and keep good records, there's nothing wrong with it. But in a regular taxable account, you either need to report an average basis or lot identification for sales and a DRIP can make that much more complicated.

Regardless of the account type, if you're anal about asset allocation and portfolio rebalancing (and the experts say that you should NOT be) DRIPs will alter the balance of your allocations as some investments have higher dividend yields than others.

Lest you think I completely hate them, I'll say something nice: They're an EASY way to be fully-invested in a particular account, since cash will not accrue.

(Note: I have no experience with Sharebuilder, so I may be wrong in that specific case.)

My comments above weren't about the difficulty in setting up a DRIP account, they were about managing them. Why have separate DRIP accounts for P&G, GE, Microsoft, and a few other companies when you can own all of them in a single brokerage account?

As you can see, they get to be an administrative burden if you have many stocks you buy this way.

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