How to Compare Investment Vehicles - dummies

How to Compare Investment Vehicles

By Lawrence Carrel

Investment vehicle is a fancy term used to describe an investment product other than basic stocks or bonds. Sometimes the term “investment vehicle” refers to a product, such as a fund, which holds many different stocks or bonds. Other times, it refers to a way to purchase stocks or bonds other than a straightforward purchase. Some examples are

  • Dividend reinvestment plans (DRIPs): Many companies that pay dividends allow investors to enroll in DRIP programs, which automatically reinvest dividends to purchase additional shares. This strategy is usually a great way to compound returns.

  • Direct stock purchase plans (DSPs): DSPs allow you to purchase shares directly from the company rather than through a broker, which can save you some money on commissions and fees. They’re also called direct purchase plans, or DPPs.

  • Dividend-focused mutual funds: The main benefit of a dividend-focused mutual fund is the same as that for any mutual fund — it provides an easy way to diversify your holdings. In exchange, you relinquish your control over picking individual stocks to the mutual fund manager.

  • Exchange-traded funds (ETFs): An ETF is basically an index mutual fund that trades like a stock. Quite a few ETFs focus on dividend investing.

  • Foreign dividends: Some foreign companies pay dividends, too, and with foreign dividend investment vehicles, you don’t even have to worry about trading in your yens, euros, and shekels for dollars.