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 ?
This means we need to look again at re-investment in our own country; that is re-investment in technology that is ahead of the rest of the world and re-investment in our work-force.
5m [pounds sterling] re-investment programme and is key to further improving the analytical and quality control systems that the company already operates.
UK management is under pressure from investors to pay increasing dividends so that less profit is available for re-investment.
John Caudwell, the multimillionaire owner of Midlandbased high street retailer Phones 4u, will today unveil details of the first re-investment of cash raised by the pounds 405 million sale of one of his companies to Vodafone.
In his presentation to council, Graham showed that, in terms of economic development, Sudbury will enjoy the jobs and economic activity associated with the turbine manufacturing, the design and contracting, the wind-data collection and assessment and the re-investment of revenue in EarthCare Sudbury and other city priorities.
The study factored in the provincial clawback of the NCB from social assistance recipients and re-investment in cash or income-support programs.
This income must provide both for families and re-investment.
So that by 1998, from re-investment alone you've got a profit number that's almost as big as Nabisco.
It is this same culture that has helped grow revenue and maintain profitability every year since the company was founded in 1981, which assures DCL customers of technology re-investment and supplier stability.
The blighted homes, which are all owned by public entities, are broken into five areas - tipping point neighborhoods, re-investment neighborhoods, buffer areas, key corridors and those houses around Carpenter Road Elementary.
It was also discussed in the meeting about the other issues including, NEEDS assessment of Nigerian public universities, re-investment plan in the power sector and disposal of 78,000 laptops used for 2011 elections by the Independent National Electoral Commission (INEC).