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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 ?
Reinvestments and Hhs' reinvestment behaviour in existing housing stock have captured attention of researchers in Europe and in the US since the late 1960s due to changing housing policies by the end of that decade.
Public companies subject to reporting under the Sarbanes-Oxley Act of 2002 (SOA) will want to evaluate their controls in place to reasonably assure timely and accurate reporting of any changes in income taxes that may have resulted from changes in reinvestment or repatriation plans.
I'm working with the IRS to obtain a consistent reinvestment period for all Southern California wildfire victims.
Before joining Neighborhood Reinvestment, Wade spent more than 10 years with Boston's United South End Settlements, where he last worked as deputy director of programs.
With inadequate means of matching top-down and bottom-up requirements in allocating reinvestment capital, many companies have largely curtailed capital spending for easily identifiable, long-term earnings enhancing investment projects.
When critics say that the idea of reinvestment won't work, activists point to a so-far successful partnership between water users in New York City and their upstate watershed.
Comparing this ratio to the reinvestment ratio provides insight into the sufficiency of a company's reinvestment and the maintenance of its asset base.
The Global Reinvestment in Affordable Neighborhood Development (GRAND) program will stimulate the construction of up to 2,500 units of housing throughout the city's five boroughs, helping families whose incomes range form $20,000 to $53,000.
Algiere is senior vice president of Compliance and Community Affairs and the community reinvestment officer for The Washington Trust Company.