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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 ?
5 percent of participants had each budgeted to reinvest $10-50 million over the course of 2014, and 14.
This time, however, the company uses cash proceeds of $15,000 from the exercised stock options to reinvest in its operations.
He also said that the nation would reinvest in US Treasury bills.
If you do choose to reinvest your dividends, though, you will need to look to other types of investments to provide you with income, assuming you need some income from your portfolio, which may become more necessary during your retirement years.
You simply have to buy equal or up and reinvest all the cash.
The new telephone service makes it easier than ever for customers to reinvest in Savings Certificates, taking away the need to fill out lengthy forms.
1033(g), a property owner who loses rental property can reinvest in a building that is like-kind, which is a broader definition than the functionally similar or related in service or use criterion of Sec.
However, it is essential that you reinvest your Tessa money within 6 months of its maturity or you will lose this valuable benefit.
But even more important, they can identify and then strip costs out of processes that do not add strategic or economic value to the manufacturer/customer relationship, and reinvest in processes that are mutually valuable to the relationship.
The tax law provides relief for taxpayers that reinvest money obtained from an involuntary conversion.
This alternative, however, negates a major purpose of doing like-kind exchanges, which is to preserve as much capital as possible to reinvest in real estate and not to use cash reserves to pay off former partners.
The hope is that producers who seek independent certification of their management practices will reap additional profits from their "green" products which they can then reinvest into better forest management.