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Popular Courses. Table of Contents Expand. Dividend Reinvestment Plans. Reinvesting by Timing the Market. Buying an Index Fund. The Bottom Line.
Key Takeaways By reinvesting the dividends you receive from your investments, you can accumulate more shares and enjoy compound returns over time. Many brokers, as well as publicly traded companies themselves, allow shareholders to enroll in automatic dividend reinvestment plans DRIPs. Other investors may choose to take their dividends as cash and use those funds to buy additional shares when prices decline.
Article Sources. Most discount brokers offer high-interest savings account products that you buy and sell like mutual funds; these are a great place to park idle cash that would otherwise earn nothing. There are several brokers to choose from, each with advantages and disadvantages. Scotia iTrade, for example, lets you buy and sell ETFs with no commissions, but the list of eligible securities is small at about 50 ETFs.
A few other brokers also offer commission-free ETF transactions. If your goal is to reinvest all of your cash, having the option to purchase ETFs with no commissions is a big advantage. Simply wait until enough cash builds up to purchase at least one ETF unit, and then enter a buy order. Whatever method you choose, investing in ETFs will provide diversification, and reinvesting your dividends will harness the power of compounding — one of the most important components of a successful long-term investing plan.
Questrade, Inc. You may want to check this out Investing Getting started with Passiv. Investing ECN fee guide. Investing Introduction to trading options.
Investing Download and install IQ Edge. Need more help? Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Reinvesting the dividends that you earn from your investments is an excellent way to grow your portfolio without dipping into your wallet. While mutual funds have made dividend reinvestment easy, reinvesting your dividends earned from exchange-traded funds ETFs can be slightly more complicated.
Dividend reinvestment can be done manually, by purchasing additional shares with the cash received from dividend payments, or automatically, if the ETF allows. This can be a smart idea, since there is often a longer settlement time required by ETFs and their market-based trading can make manual dividend reinvestment inefficient.
An automatic DRIP is simply a program-offered fund or brokerage firm that allows investors to have their dividends automatically used to purchase additional shares of the issuing security. This practice has been widely used in stock and mutual fund investments, but it is relatively new to ETFs. Though DRIPs offer greater convenience and a handy way to grow your investments effortlessly, they can present some issues for ETF shareholders because of the variability in different programs.
For example, some brokerage firms allow automatic dividend reinvestment but only allow the purchase of full shares. Other firms pool dividends and only reinvest dividends monthly or quarterly. Some reinvest dividends at market opening on the payable date, while others wait until the cash is actually deposited, which is typically later in the day.
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