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In 2000, Penny Bowers Cheval was a 31-year-old “cash-strapped” single mother struggling to pay basic household bills.
She told CNBC Make It that she wanted to “build financial security” beyond her employer, Progressive Insurance’s 401(k) program. So, on Suze Orman’s advice, she started putting $25 a month into a dividend reinvestment plan (DRIP).
The plan invests in a single company. Bowers Cheval chose Home Depot because Progressive wasn’t offering his DRIP account at the time. All proceeds are then automatically used to buy more shares in the same company.
This seemed like a small, practical option to Bowers-Schebal, who didn’t have the time, money, or educational resources to track the stock market or hire a broker.
She says the $25 a month felt “minor,” but it paid off. In 2017, Bowers Cheval withdrew $25,000 from her Home Depot account and used it to launch a wedding dress store called Formality Bridal in rural Geneva, Ohio.
She says her store was profitable the first year. She opened a second store in Erie, Pennsylvania late last year, and those two stores generated more than $441,000 in annual revenue, according to documents reviewed by CNBC Make It.
In the end, her Home Depot investment returned about 13% per year. This beats the S&P 500’s average annualized return of 10.26% over the past 67 years.
“I’m not a big investor, but this was a life-changing investment for me,” says Bowers-Schebal, now 55. “It gave me the opportunity to start a business without having to borrow seed money from a bank or putting my family at financial risk.”
A little luck and advice for first-time investors
Bowers-Schebal’s investment was somewhat fortunate.
Home Depot stock was split multiple times over her 20 years of investing, meaning she owned twice as much stock at half its original price. That could benefit long-term investors. When her stock price rose again, she ended up borrowing more shares at a higher value.
Investing in stable companies also helped, says Douglas Bonepers, a certified financial planner and co-author of “The Millennial Money Fix.”
DRIP accounts were created as a practical investment method, allowing beginners to explore the stock market without paying brokerage fees. However, broadly speaking, it is dangerous to tie all investment funds to one company. If your company is in the red, you are in the red, says Bonepers.
“It’s the opposite of diversification, it’s concentration,” he says. “What if she invested in a company that no longer exists, like RadioShack?”
His advice for first-time investors: Consider sites like Robinhood. This allows you to invest in multiple stocks while only charging transaction fees. It’s less “administrative hassle” than having multiple his DRIP accounts, Boneparth says.
“Everything DRIP had to offer has pretty much paled in comparison to securities trading,” he added. “Technology has given the industry a huge boost in terms of democratization and access to investment.”
Disclosure: Douglas Bonepers is a member of CNBC’s Advisory Council.
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