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Q: Are there any pitfalls with regards to drip investment plans and are there additional fees associated with setting them up?

A: DRIP stands for dividend reinvestment plan. Stocks, ETFs and mutual funds are the most common types of securities that offer DRIP plans. If the security you buy pays a a dividend or a distribution, you may be entitled to buy more shares or units of the product and this can be done automatically every month or quarter. In some cases with stocks, the dividend payment from existing shares must be large enough to buy a full share or the DRIP may not work. Often DRIP investing is done free by a brokerage. Mutual fund DRIPs may come attached with loads on each transaction - take the time to understand if there is a cost to DRIP investing and why. Often with mutual funds you may find there are options for a load and no load. DRIP is an effective wealth building technique over time as more dividends buy more shares which pay more dividends and so on - clearly it pays to keep your cost of investing lower so that the dividend reinvestment can maximize new purchases. DRIP investing happens less for many retirees that instead choose to live off their dividends and interest income.











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