Lucky Investments in Small Schemes Can Pay Off Big Time
Penny Bowers-Schebal, a 31-year-old single mother who was struggling to cover basic household bills, turned her fortune around by investing in a small scheme. She used the Dividend Reinvestment Plan (DRIP) to smartly manage her money and later grow it as well. Today, her investment has created a separate income stream and helped her start her own business as well.
Here’s How She Used DRIP To Create Financial Stability
Bowers-Schebal was initially looking for ways to “build financial security” beyond the 401(k) program, with her employer Progressive Insurance, she told CNBC Make It. She then took the advice of Suze Orman and started putting $25 per month into a Dividend Reinvestment Plan (DRIP).
How does DRIP work?
With DRIP, people can invest in a single company. In Bowers-Schebal's case, she picked Home Depot. Then the DRIP account automatically uses the proceeds generated from dividend stocks to purchase more shares of the same company. This allows investors to grow their stock without spending much at a time.
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DRIP accounts were created as a practical way to invest for newcomers as they could explore the stock market without paying any brokering commission fees. However, as per Douglas Boneparth, a member of CNBC’s Advisor Council, tying all the investment money to a single company is risky. This is because if the company tanks, the investor’s money is lost.
However, in the case of Bowers-Schebal, it turned out to be a lucky investment. For her, it seemed like a realistic option as she didn’t have the time, money, or educational resources to track the stock market or hire a broker.
She paid about $25 monthly for her DRIP account. She said at the time it felt like a “pittance” but in 2017, it paid off as she took out about $25,000 from her Home Depot account and used it to start her own business.
Bowers-Schebal’s Entrepreneurial Journey
Bowers-Schebal launched a wedding gown shop in rural Geneva, Ohio, named Formality Bridal. Her store became profitable just after its first year and she went on to open another store in Erie, Pennsylvania, late last year.
As per the CNBC Make It report, the two stores brought in over $441,000 in annual revenue, as per the documents reviewed by the publication. Further, her Home Depot investment brought her an annual return of roughly 13% which is more than the S&P 500's average annualized return of 10.26%.
“I’m not a big investor, and this was a life-changing investment for me,” Bowers-Schebal, who is now 55 years old, told CNBC. She said that her small investment allowed her to open a business without having to borrow the seed money from a bank and risking her family’s finances.
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Over the period of her investment, Home Depot’s stock split multiple times, which meant Bowers-Schebal owned twice the number of shares at half their initial price. This benefitted her in the long-term investors as when Home Depot’s shares went back up, she owed more shares at a higher value.
