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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
We have to have player transfers to ease the financial burden, but as long as we keep on reinvesting at the same time then that's good for the club."
Assuming the share price is constant, if the company's expected rate of return on internal investments is less than 4.9%, then the company should repurchase shares because EPS is always higher in comparison to reinvesting. Alternatively, if the company's expected rate of return on internal investments is greater than 4.9%, then the company should reinvest because EPS is always higher in comparison to repurchasing shares.
"Point-to-pointers who were sourced as store horses have sold very well recently and I would expect to see their vendors reinvesting. Money in the bloodstock world seems to go round in a circle and it should come back here."
A quarter (26 per cent) of those surveyed cited difficulty in securing finance and credit as the main reason for not returning profits to investors or reinvesting in the business.
So, to help boost your share ownership, consider reinvesting the dividends back into the stock, rather than taking them as cash payments.
The shareholders of the plan will have the option to acquire additional shares by automatically reinvesting all or a portion of Portland General's cash dividends or by making additional cash investments.
In Risk Controlled Investing, Stanasolovich also discusses taking distributions and depositing them into a discount brokerage account's money market fund for distribution if desired, rather than the traditional wisdom of simply reinvesting dividends.
With zero-coupon bonds, investors know their exact yield to maturity since they do not have to worry about reinvesting cash flows at, perhaps, lower rates of interest than they are receiving on the bond.
Paul and reinvesting every dollar of profit back into the community in the form of education and services.
If they fall, which has happened over the last few years, the overall yield of the bond portfolio will fall too if reinvesting is done in lower interest bonds.
Cleaning up and reinvesting in these properties increases local tax bases, facilitates job growth, utilizes existing infrastructure, takes development pressures off of undeveloped, open land, and both improves and protects the environment.
How risky will reinvesting be and how long do I have to make up my mind?