'Autopilot' portfolio for long-term investors
Aug 08, 2008

"I’ve always been a big fan of putting into the market on a regular basis regardless of what is happening in the overall market" explains Chuck Carlson.

The expert on dividend reinvestment plans and editor of The DRIP Investor offers a 10-stock "autopilot" portfolio that is diversified among 10 high quality dividend-paying stocks and requiring a monthly investment of under $500.

"If I’ve learned anything in the  more than a quarter of a century  of following the markets, it is this fact — buying stocks when you know you should (i.e. during sharp down moves) is really difficult. Our heads says we should; after all, substantial market downturns create the best values.

"But our emotions usually take control, thus making it very difficult to pull the trigger and put money into the market when stocks are falling.

"That’s why I’ve always been a big fan of 401(k) plans. With these investment vehicles, investment programs are put on 'autopilot,' with dollars being put into the market on a regular basis (usually each paycheck) regardless of what is happening in the overall market. 

"Fortunately, investors can duplicate the autopilot feature of 401(k) plans with their DRIP investments by taking advantage of automatic monthly investment features provided by most DRIPs.

"Under this feature, investors can set up automatic investments via electronic debit of their bank accounts each month. For investors who use this feature, DRIP plans usually reward them with a number of benefits.

"For example, it is not unusual for a firm to waive the minimum initial investment amount if an investor is willing to agree to automatic monthly investments via electronic debit from their bank account. For example, the minimum initial investment to join Walt Disney’s direct-purchase plan is $1,000.

"However, Disney will waive this amount if an investor agrees to automatic monthly investment of at least $100. The ability to invest smaller amounts via electronic debit increases the accessibility of many DRIP plans. 

"Firms usually charge a lower fee on shares purchased with automatic monthly investment. Returning to our Disney example, the firm charges DRIP participants a fee of $5 for shares purchased with a check. However, shares purchased via automatic monthly investment are charged a fee of just $1. 

"True, if you choose to invest via automatic monthly investment, you are committed to making regular monthly investments. However, your requirement usually extends only until you invest the amount that equals the minimum initial \investment.

"For example, if you choose to make automatic monthly investments in the Disney plan, you need to make those automatic investments until you reach Disney’s minimum initial investment amount of $1,000. That would mean a minimum of 10 monthly investments of $100 each.

"The following 'autopilot' DRIP portfolio contains 10 quality stocks. All of these companies permit initial purchases directly, and all reduce their minimum initial investment amount if an investor agrees to automatic monthly investment via electronic debit of a bank account.

"To make automatic monthly investments in all of these 10 stocks would require a monthly investment of just $475: 

Becton, Dickinson (NYSE: BDX) - minimum monthly investment of $50 
Costco Wholesale  (NASDAQ: COST) - minimum monthly investment of $25 
Disney (Walt) (NYSE: DIS) - minimum monthly investment of $100 
Exxon Mobil (NYSE: XOM) - minimum monthly investment of $50 
IBM (NYSE: IBM) - minimum monthly investment of $50 
Lockheed Martin (NYSE: LMT) - minimum monthly investment of $50 
Medtronic (NYSE: MDT) - minimum monthly investment of $25 
Microsoft (NASDAQ: MSFT) - minimum monthly investment of $50 
Questar (NYSE: STR) - minimum monthly investment of $50 
Staples (MASDAQ: SPLS) -minimum monthly investment of $25