Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Dividend Reinvestment Is One of the Most Powerful Wealth-Building Strategies Out There!

InvestorEducation / Dividends Jun 13, 2008 - 04:02 AM GMT

By: Money_and_Markets

InvestorEducation

Best Financial Markets Analysis ArticleNilus Mattive writes: I recently got a question on my blog asking whether it's better to cash in dividend checks or reinvest them.

It's a great topic, and I have a very definitive answer: If you're an income investor who could really use the dividends to live right now, by all means cash those checks.


However, if you can afford to reinvest your dividends, by all means consider doing so.

After all ...

Dividend Reinvestment Is One of the Most Powerful Wealth-Building Strategies Out There!

It's no secret that I consider dividends one of the best wealth-building tools in the world of investing. But I consider the effect of compounding to be equally powerful.

As you know, compounding takes time, as the money you've already earned on your investments begins to earn returns of its own.

For example, if you put $10,000 into a savings account with a 6% annual interest rate, you'll have $10,600 after one year. Next year, you'll be earning 6% on the $10,600 rather than just the original $10,000.

That might not seem like a big deal, but the effects can really add up over time. Ten years later, you'd have almost $18,000, 80% more than you started with!

With dividend reinvestment, you're combining both concepts into one mega-force. And if anything, the compounding is even more accelerated. Here's why:

You'll be steadily increasing your holdings of a particular stock over time, setting yourself up for even more dividends down the line.

As various studies have proven, dividend reinvestment is responsible for much of the market's historical performance.

In fact, asset management company Eaton Vance says as much as 65% of U.S. stock gains have come from reinvested dividends!

And when I worked for Standard & Poor's, the company did a study that sliced and diced the S&P 500 stock index. Here's what they found:

Over a 20-year period, capital gains would have produced a 381.9% gain. Not bad. But reinvesting dividends would have turned that gain into a 905.1% windfall.

Which Would You Rather ... 381.9% or 905.1%?

So as you can see, dividend reinvestment is a smart move.

The even better news is that reinvesting your dividends doesn't have to be a complicated process. In fact ...

When Properly Set Up, Dividend Reinvestment Is Automatic and Free

Hundreds and hundreds of companies are more than glad to help long-term investors buy additional shares with their dividends, so they've created Dividend Reinvestment Plans (or DRIPs) to make the process easier.

Here are some pointers on DRIPs:

  • In some cases, the company runs the plan itself. Most times, however, the plan is run by an independent agent.
  • While a few plans allow you to buy your initial stock directly, most require you to be a current shareholder.
  • Many plans also allow you to buy additional shares with your own money; and some will even automatically deduct a set amount from your checking or savings account at predetermined intervals.
  • A select number of plans even allow you to purchase your shares at a discount (generally between 1% and 10%) to the stock's current market price. Talk about a deal!

Now, before you sign up for one of these plans, please note that if you don't plan on participating for at least a few years, it's probably not worth the hassle.

Okay, you own a dividend-paying stock and you want to reinvest your dividends. How do you get started?

First, find out whether a company offers a DRIP plan. You can contact its investor relations department to find out. They'll be happy to provide you with the necessary forms and/or the plan agent's phone number.

These days, you can also find much of the information on third-party websites. One very useful site is www.computershare.com . This company acts as the plan administrator for hundreds of DRIP plans and their website allows you to search by company name. Another valuable resource is www.moneypaper.com , which offers many of the same features.

If your company offers a plan, you simply sign up for the plan by phone or online. Then, the company itself or its plan agent will automatically reinvest your dividends into additional shares. If they allow additional purchases, they can also help you set up automatic deductions from, say, your savings account.

If your company doesn't offer a DRIP, don't despair. There are still ways to efficiently reinvest your dividends. Many brokers will do it at no charge. And if they won't, you can always switch over to a broker that acts like a DRIP plan. One such service can be found at www.sharebuilder.com .

What about mutual funds and ETFs? Many funds will automatically reinvest dividends for you. And although exchange-traded fund investors are typically responsible for reinvesting any dividends they receive, your broker might be willing to do it for free. So don't be afraid to ask.

Bottom line: I think reinvesting dividends is the right choice for most investors. I don't know of a better way to steadily increase a portfolio's value over the long haul.

Best wishes,

Nilus

P.S. Most of the recommended companies in Dividend Superstars offer DRIPs. So if you're looking for some new income ideas, I encourage you to subscribe today for just $39 .

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules