Are you interested in learning more about direct investments? While there are many possible definitions of direct investment, we’ll focus on the ones associated with dividend reinvestment plans (DRIPs) and direct participation programs (DPPs).
Direct investments using dividend reinvestment programs (DRIPs) are an excellent way to build wealth over a long period of time. The basic mechanism is as follows. You buy a stock in a particular company that issues dividends. Instead of receiving and saving or spending those dividends, instead you elect to reinvest them in the company by buying more stock. Typically this election is made through your stock broker or with the company directly. From then on, whenever the company issues dividends you are effectively converting your share of that company’s income into equity in the company. This approach has the effect of compounding your returns and can achieve tremendous financial results over long periods of time.
Direct participation programs are a different way of making direct investments. In this case typically the underlying investment is energy or real estate related. Investors choosing DPPs are essentially buying into the cash flow generated by the energy or real estate assets of the business. Direct investments using DPPs can also be very profitable.
Therefore – to summarize the key benefits of direct investments using DRIPs or DPPs:
- DRIPS can build a great amount of wealth over time.
- They allow investors to automatically reinvest dividends
- With DRIPs you are essentially converting cash flow into equity
- DPPs are another way to make direct investments
- When you invest in a DPP you are buying into the cash flow created by that company
Therefore whether you choose to make direct investments using the DRIP approach or the DPP approach, as an investor you have the opportunity to steadily build wealth and help prepare for a comfortable retirement.