DRIP Plans: An easy way to invest (some) of your savings

I have started looking into DRIP plans for a couple stocks I am interested in. I will not list them here as I do not want it to seem like I am giving specific investing advice. DRIP stands for Dividend ReIvestment Plan. It does not take a lot of money to start and is economical.

One I am looking out requires $25 initial investment and $25 ongoing (if desired, you can stop at $25 if you want). It costs $1 for each investment ($1 per month, for example). Dividends are automatically reinvested in the stock at no extra cost. Overall this is not a bad deal.

I am a firm believer that the majority of everyone's investments belongs in mutual funds. I also go by the rule that I will use no more than 5-10% of my investments for individual stocks. This limits my risk and keeps me diversified. I do my homework before buying an individual stock so I can feel comfortable pulling the trigger on them.

These plans work best for stocks that pay fairly large dividends. You can also set up something similar with some online brokers that allow free dividend reinvestment as well. Brokers are best if you are investing a larger some at one time and simply reinvesting the dividends. I also like having my investments in fewer places so I get fewer 1099's for tax time.

Overall DRIP plans can be good if you like a particular stock for a long term hold. It is a good tool to build wealth over time and automatically as long as you do not get too heavy into any 1 particular stock. Be sure to do your homework and research the stock(s) thoroughly before you invest.