This year I decided to diversify and consolidate my investments in both stocks and crypto. And as I've done that and I've learned more and more from each domains, I ended up concluding that what mostly works on stocks and financial system in general, also applies to crypto assets. Thus, while I will present you a strategy that I am actively doing in stocks, without even knowing I am doing the same also in crypto. The strategy that I am talking about is the DRIP investing model or the dividend reinvestment plan. This is a program designed to slowly compound your shares in a given company by using the yields from dividends. Basically it results in compounding your returns drop by drop or to make an analogy drip by drip.
What is a DRIP investment?
A DRIP is an investment plan offered by different companies that gives investors the chance to reinvest the cashed dividends to purchase more shares. As a result of it, you can increase the share percentage of an asset and strengthen the position while often purchasing additional stock at a discount. Some of the benefits of this can be discounted share prices, waiving of transaction fees or even being tax-free operations if the legislation is aligned in this sense.
How does DRIP investment works?
DRIP investment is pretty straightforward as after you enroll in a DRIP program, whenever dividends are issued, you'll see that cash go straight toward the purchase of more shares of that specific investment. So, instead of receiving cash, your dividends will go directly toward purchasing additional stock with added benefits as presented above.
Is there any flexibility to the DRIP investment?
Some DRIP investments allow flexibility in using a percentage from the cashed dividends to purchase stock on same shares, while the other portion can be used at your own willing. You can even set rules to purchase other stocks with the returns from these dividends or even to cash out. In my case I must say that I am routing the dividend yields myself into the stock of my choosing based on the market conditions. If some assets from my portfolio are at a discount, I am directing all the cash proceeds from the dividends to purchase that particular stock. This way I try to maximize what stocks to buy based on the market opportunities.
What are the pros of DRIP investments?
- Dollar-Cost Averaging (DCA)
- Compound returns
- Set it and forget it
- Lower fees
- Stocks discounts
What are the cons for DRIP investments?
- Minimum shares buy conditions
- Taxation
- Risk of lack of diversification
How does the DRIP investment apply to crypto?
In my opinion the DRIP investment is reflected in best way in crypto when it comes to stablecoins. Opting for a stablecoin staking plan with period returns and compounding is the way to go. In addition to that you have the option to use part of the stablecoin proceeds (which are predictable), to buy different crypto assets and thus diversify your portfolio. And I cannot move forward without mention the HBD stablecoin from the HIVE blockchain which offers a 20% APR that can be compounded and used for future investment. This is a hidden gem that it is yet to be discovered by big investors in the finance or crypto space.
For me it is amazing as I learn new things in the financial domain to understand that those tend to apply where originally intended (like DRIP applies for stocks), but find similar use cases in new domains like cryptocurrencies. Being in finance and assimilating strategies and assets management will help in both worlds in the end. This can only result in a better investment plan with assets from both worlds which in the end will mitigate risk and improve the overall yields based on the market dynamics.
Posted Using InLeo Alpha
