DRIP Investing, Step by Step

DRIP & Direct Stock Investing Glossary

The key terms every direct stock investor should know:

AAII - American Association of Individual Investors, a membership organization that assists individuals in learning about all kinds of investments - bonds, stocks, mutual funds, annuities, etc.

buy and hold - a philosophy of buying stocks and holding them for the long term, typically 5 to 20 years.

capital gains - profits that come from selling shares at a higher price than the original cost.

cost basis - the calculated cost of a particular share or group of shares of stock.

dividend - a payment to a stockholder of a share of a company's profits, usually paid quarterly and in cash.

DRIP - Dividend Reinvestment Plan, a program offered by a publicly-traded company in which dividends that are normally paid as cash to stockholders are used to purchase additional shares in that company.

DSP - Direct Stock Plan, a program offered by a publicly-traded company in which investors may purchase shares directly from the company. Subsequent dividends will usually be reinvested in additional purchases of shares.

dollar cost averaging - a method of investing whereby an investor invests a specific dollar amount on a regular basis, such as monthly. When the share price is high, the value of all previously-purchased shares goes up; when the share price goes down, there is an opportunity to purchase a larger number of shares at the lower share price. The advantage of this method is that an investor does not have to worry about "timing" the market.

market timing - an attempt, usually futile, to time the best moments to get in and out of the stock market.

NAIC - National Association of Investors Corporation (also National Association of Investment Clubs).

OCP - Optional Cash Purchase, a purchase of additional shares made through the dividend reinvestment account.

Street name - a form of stock ownership in which shares are registered to a brokerage or other financial institution and held for the benefit of the firm's account holders.

Shareholder of record - the owner of shares of a company's stock as it is registered in the company's files.

Signature Medallion Guaranty - a formal program used by banks and other institutions to verify an individual's signature.

Transfer agent - a financial institution or bank that manages the ownership records of a company's stock, including the transferral of any shares.

[ next chapter ]
[ table of contents ]