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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.
These include (1) improving the quality of our investment portfolio by selling subordinated bonds and reinvesting in senior bonds, (2) improving returns to the Partnership by reinvesting both bond sale proceeds and contingent interest payments at a coupon rate that is expected to be higher than the 5% per annum coupon rate on the Northwood Lake bonds and (3) improving the clarity of the Partnership's financial statements by eliminating the assets, liabilities and operating results of Northwood Lake Apartments from our financial statements.
They rarely turn over their portfolios, instead reinvesting all profits, including dividends and interest.
Besides saving on commissions with DRIPs, reinvesting dividends can produce a windfall.
Without reinvesting dividends, that $1 only became $4.
Chuck can defer the $18,000 gain attributable to the personal portion of the residence by reinvesting at least $130,500 (the adjusted sales price of the residence portion of the former principal residence) in another principal residence within two years.
This feature provides unitholders with an excellent opportunity to benefit from reinvesting distributions in additional units.
Suppose you invested $5,000 in a technology-oriented mutual fund in 1990 and held on to the shares, reinvesting all distributions.
Reinvesting dividends or interest payments on a regular basis significantly increases a portfolio's returns.
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.