Reinvestment

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Reinvestment

Use of investment income to buy additional securities. Many mutual fund companies and investment services offer the automatic reinvestment of dividends and capital gains distributions as an option investors.

Reinvestment

The act or practice of taking profits or other proceeds from investments and making other investments with them. It nearly always means that one is investing in more of the same security. For example, one may take dividends from a stock and buy more shares with it or may take coupon payments to buy more of the same bond issue. Reinvestment often increases the value of a security.

Reinvestment.

When you own certain stocks and most mutual funds, you can reinvest the dividends or distributions to buy more shares instead of receiving a cash payout.

In a corporate Dividend Reinvestment Plan (DRIP), for example, a company offers you the right to reinvest any cash dividends automatically to buy more stock. When you open a mutual fund account, you're generally offered an automatic reinvestment option as well.

One benefit of reinvestment programs is that in most cases you can make the new investments without incurring the usual sales charges, so it can be a lower cost way to build your investment portfolio.

One potential drawback, if you're reinvesting in a taxable account, is that you acquire shares at different prices, so figuring the cost basis for capital gains or losses when you sell can be more complicated than if you made fewer, larger purchases. It's also true that you owe income or capital gains tax in the year the money is reinvested, which isn't the case in a tax-deferred or tax-free account.

You will also want to consider the impact of reinvestment on the diversification of your portfolio, since buying additional shares increases the percentage of your portfolio that is allocated to a particular stock or mutual fund.

References in periodicals archive ?
The separation from First Data creates rich opportunities for Western Union to continue to strengthen our brand, expand and deepen our relationships with consumers and agents, and re-invest our strong cash flow in growing the business.
The main theme of Re-Invest is to attract investments for the renewable energy sector.
They've got PS150 to invest in stock for a market stall and a pop-up shop with the idea that they re-invest their profits in more stock.
As a result the Treasury has granted special one-off permission for them to re-invest that money in the Rock - or any other ISA account.
Coun John Lines, Cabinet Member for Housing, said: "The redevelopment of the Meadway will allow us to work with developers to provide decent homes and re-invest in council properties.
They should re-invest some of their huge profits in training their staff on how to deal with customers' complaints.
The other point is that we must re-invest a sizeable chunk of the fee to replace Adebola.
But the challenge of sustaining one-industry towns is "hard slogging work," he says, and business people must re-invest in their communities by creating development corporations and establishing local foundations.
As profitability and cash flow continue to improve, companies will be better positioned to re-invest in human resources," Mosler said.
It is their intention to re-invest their cash when the market has reached the bottom.
It's the same with TESSAs - this year is your last chance to start a new TESSA (Tax Exempt Special Savings Account) or to re-invest the proceeds of a maturing one for a further five years.
Members of St Faith's Church in Lee-on-the-Solent, Hants, will be told to re-invest the money.