Author Topic: Reinvest or cash from dividends?  (Read 2203 times)

rugorak

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Reinvest or cash from dividends?
« on: April 21, 2012, 02:46:33 PM »
I am about to get into investing as far as taxable accounts go. I am debating whether to automatically reinvest dividends or take the cash and then manually reinvest (at least for the immediate future). I've done some research and it looks like it would be easier for tax reasons and re-balancing. Plus it would get me in practice of being aware of when dividends are paid and how much such that in the future when it is large enough to potentially live off of (in whole or in part) I could already be in the routine, etc.

Anyway curious on other mustachian opinions on which way to go.

Thanks!

astadt

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Re: Reinvest or cash from dividends?
« Reply #1 on: April 22, 2012, 05:23:19 AM »
Well I'll say that it depends on whether your going to be charged for commission fees when you eventually reinvest. Are you going with individual stocks or ETFs that are commission free? You'd save money and thus be very burly if you go with a free DRIP to get that money back in. I especially love the dollar cost averaging that happens (I LOVE monthly dividend stocks) when you use DRIP.

If youve mitigated the commission fee problem, I'd say theres no issue and its a pure preference thing. Good luck!

Tyler

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Re: Reinvest or cash from dividends?
« Reply #2 on: April 27, 2012, 12:01:42 PM »
I personally like receiving dividends in cash and reinvesting them manually.  Assuming you have a diverse asset allocation, that lets you always buy low and helps keep your portfolio balanced.

ErikZ

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Re: Reinvest or cash from dividends?
« Reply #3 on: April 29, 2012, 09:36:48 AM »

Reinvesting dividends seems like autopilot to me. Which is fine if your attention is focused on other things.

MsLogica

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Re: Reinvest or cash from dividends?
« Reply #4 on: April 29, 2012, 03:08:22 PM »
Mine are automatically reinvested.  In the Uk this avoids tax (unless you're already trading through an ISA, in which case you won't pay tax anyway).

rugorak

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Re: Reinvest or cash from dividends?
« Reply #5 on: April 30, 2012, 08:26:09 AM »
Thanks for all the advice. I have automatic reinvest on my tax-advantage investments (Roth, 401k/403b, etc). But since this will be taxable the only big thing will be a consideration will be the commission fees. I still have some time before I have enough for an initial purchase of any sort. I need to crunch the numbers but I think for me it will work best for the manual reinvest. It won't be horridly expensive since at first I'll be only doing a few purchases a year. And by the time I would be doing more trades per year I'll qualify for a lower rate. (Plan on using Vanguard at the present).

Thanks again!

vwDavid

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Re: Reinvest or cash from dividends?
« Reply #6 on: April 30, 2012, 11:26:45 AM »
For me it depends on the phase of my investing strategy. Right now I am still in the accumulation phase, investments that are DRIP able either hard/soft/or synthetic I try to reinvest.

When I hit my asset allocation I will gradually start shifting to cash to seek value reinvestments.

Then when we FIRE we'll of course be all cash living on divs only.

orangeclocker

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Re: Reinvest or cash from dividends?
« Reply #7 on: April 30, 2012, 11:44:42 AM »
My dividends are reinvested for free through Etrade, which eliminates those commissions. As far as I know, taxes are paid on those dividends regardless if you take them in cash or automatically reinvested (U.S.). I re-balance once per year according to my Dollar Value Averaging plan (http://en.wikipedia.org/wiki/Value_averaging).

rugorak

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Re: Reinvest or cash from dividends?
« Reply #8 on: May 03, 2012, 01:26:49 PM »
With Vanguard mutual funds and ETF's appear to be commission free (as long as they are theirs). And I think just starting out it makes more sense to go into those. For the few other things I might think about investing it it won't be many times per year so the $7 per trade won't be bad.