What to do with small dividends in brokerage account?

Question

I just got paid some dividends from an ETF that I own. It is only $4, which is sitting as cash in my brokerage account. I'm aware that this is a very tiny amount of money in the grand scheme of things, so this question is more for my curiosity's sake.

The ETF doesn't offer a DRIP option, but even if it did, it probably wouldn't meet the minimum amount needed for a commission-free purchase.

What's the best thing to do with this cash? Sit on it till I have more that I can use for trading down the road?

Answer 1

Assuming you have no new cash to add to your account as gyurisc has suggested, I wouldn't sweat the small amounts – it doesn't hurt to have a little cash sit idle, even if you want to theoretically be fully invested (the wisdom of doing that, or not, perhaps worthy of another question :-)

If you try too hard to invest the small amounts frequently, you're likely to get killed on fees. My strategy (if you could call it that) is to simply let small amounts accumulate until there's enough to buy more shares without paying too much commission.

For instance, I don't like fees to be more than 1% of the shares purchased, so with a $10 commission per trade, I prefer to make minimum $1000 purchases.

I used to roll small amounts of cash into a no-load money market fund I could buy without commission, and then purchase shares when I hit the threshold, but even putting the cash in a money market fund isn't worth the hassle today with rates of return from money market funds being close to zero.

Answer 2

Don't sit on it, because the money does not work for you. Add more money to it and buy a stock or stocks of the company.

Answer 3

Some brokerages will allow you to enroll your account in a dividend reinvestment plan -- TD Ameritrade and I think Schwab for example.

The way the plan works is that they would take your $4 and give you whatever fractional share of the ETF it is worth on the payment date. There are no fees associated with this purchase (or at least there are in the programs I've seen -- if you have to pay a fee, look for another brokerage).

You may also be able to enroll specific securities instead of the entire account into dividend reinvestment. Call your brokerage to see what they offer.

Answer 4

Keep it in the account. It's common for brokers to charge small running fees from time to time and always keeping a little bit of money in the account is an easy way to keep your back covered.

Of course, if your broker doesn't charge any fees, then defer to the other answers.