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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 ?
vvCollins re-investing Fresh from a fruitful breeze-up campaign, John Collins of Brown Island Stables was at Doncaster yesterday adding to his team of store horses.
Mrs Hart said: "I am delighted the company is re-investing in Wales and chose to base this new facility in Wales because they have been impressed by the quality of the workforce.
By making deeper savings in support areas across BBC Wales, we expect to limit the level of direct budget reductions facing programming and content areas to an average of 10%, whilst re-investing in key areas.
We are re-investing to move forward, with new product development, sales and marketing activity.
The dealership, based in Tweed Heads South, is re-investing in preparation for the expected second global financial crisis.
Sound & Stage have made the natural progression to re-investing in their Midas digital system by increasing the I/O and having the recording capability for the high end shows they produce," commented Chicco Hiranandani, business development manager at NMK.
We are working hard to identify the best locations for sites and are intent upon re-investing our capital to continue to develop and expand our storage and real estate portfolio.
This is going to be an impetus and a wake-up call to other hotel owners being capable of re-investing in their facilities considering this is going to be a brand by all world standards," Donco Tanevski from the Hotel Association HOTAM said.
FED announced its intention to continue with the policy of re-investing assets into the principal securities.
He said the telecom operators have curtailed to send revenues to their headquarter countries whatever they earned in Pakistan and re-investing their earnings on their operations and businesses.
Taking ownership of its 20,000 sq ft building in West Auckland will allow Atlas Washroom Systems to make savings of around pounds 20,000 per year, which management is re-investing into the business.
We're looking forward to driving innovation, growing our presence, re-investing in our brands and inspiring our consumers in Spain.