The Monthly Investment Plan (MIP)

This plan was devised by members of the New York Stock Exchange for those people who wished to buy common stocks on an installment basis, so that each month they could make a regular payment for that purpose.

For quite some years the Exchange had received inquiries, and in 1953 members devised a plan whereby a person could buy common stocks regularly with a minimum payment of $40 monthly (or even quarterly). All stocks which were bought would carry the same commission rates charged on other NYSE transactions.

The plan was offered to the public in January, 1954, and has achieved a considerable measure of success. The investor decides what amount he will pay, either monthly or quarterly, and also designates the particular stock which he wishes bought for his account; he may change, or even discontinue, his purchases at any time.

One might be tempted to think that the MIP investor would be likely to buy low-priced and highly speculative issues; to the contrary, on the fourth anniversary of MIP (January, 1958) it became evident that the investor utilizing MIP preferred those stocks which were of better grade, whose names were household words, and whose price range lay in the $40-$30 grouping. In addition, a definite preference was expressed for certain industries, the leaders of which were, in order: public utilities, chemicals, petroleum, and natural gas.

Still another pertinent fact is that the large majority of stocks selected for purchase were consistent dividend payers, having unbroken dividend records ranging from 10 to 75 years. The number of plans in effect amounted to about 66,000 and represented a total investment of approximately $80 million.

The Monthly Investment Plan offers the modest investor many benefits. For instance, it makes available to him a system called "dollar cost averaging," which is simply the investment of a certain sum in the same stock at regular intervals, and it enables the investor to capitalize on price fluctuations instead of worrying about them.

The method works because you buy more shares of your stock with the fixed amount of money when the stock drops in price than you do when it is comparatively high, and when the stock rises again you make a profit on the greater number of shares you got at the lower prices.

For example: Leaving commission charges out of the picture for the moment, suppose you decide to invest $100 every three months. Let's say the stock you pick sells at $20 when you start; you get 5 shares. Three months later, the price had gone up to $25; this time your $100 buys 4 shares. You now own 9 shares and you have spent $200.

The average price in the two transactions was $22.50, but the average cost per share to you is only $22.22. Over a long period of time this difference between average price and average cost on a number of shares can amount to a good deal of money, and as long as you ultimately sell at a price above your average cost, dollar averaging can make money for you no matter how the price of your stock goes up or down.