Anyone new to the world of investments might be confused with the number of financial instruments that are currently available in banks and other investment institutions. Traditional options such as bonds and mutual funds are still available, but it might be worth looking into newer investment types such as Dividend Reinvestment Plans or DRIPs.

A DRIP is like a stock investment except that your money goes directly towards stocks that pay dividends. These dividends are the earnings investors get for owning a company’s stock. Depending on a company’s performance, a stock might earn one cent or fifty cents. It might not sound like much, but when the usual practice is to purchase tens or hundreds of stock options, you can see how much investors can earn per share.

With DRIPs, you have the option of collecting the dividends awarded by the company, or reinvest those earnings into your current DRIP portfolio. In the beginning, your earnings may seem insignificant, but if you choose to reinvest, you’ll see your portfolio grow larger and earn more frequently, especially if you choose to go with company stocks that pay dividends semi- annually or even quarterly.

DRIPs sound like a worthwhile investment, but take care not to put too much faith into one option alone ; as with all financial options, DRIPs can be risky especially if you don’t know anything about the stocks you’re choosing. The best way to earn from your investment would be to do thorough research before even considering purchasing a single DRIP option.