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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.


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.


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 ?
We show, however, that there are certain situations where companies are better off reinvesting the cash proceeds from exercised stock options on internal investments.
But in any case, if you can do without the current income provided by dividends, give careful consideration to reinvesting them.
If you have been investing in a mutual fund for years, putting money in at various times and reinvesting distributions, calculating taxable gains may be difficult.
Without reinvesting dividends, that $1 only became $4.
Coues stated that MGI anticipates reinvesting these funds through a tax-deferred exchange.
Reinvesting dividends or interest payments on a regular basis significantly increases a portfolio's returns.
So, reinvesting $100 of dividends in a company that offers a 5% discount would give you $105 worth of stock.
By reinvesting any and all cost savings back into the stores," said Stangeland, "Vons can maintain our commitment to improving store conditions and pricing.
The Company is in the process of amending the Plan to allow participants the choice of receiving the cash dividend or reinvesting the full dividend.
Some Canadian plans offer a choice of reinvesting dividends or receiving a stock dividend.
And so, the problem of reinvesting in a low interest rate environment will also continue.
a blanket extension on the deadline for reinvesting compensation for