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I am looking for help in finding a method to evaluate a specific holding (stock or ETF) and decide whether I should be automatically be reinvesting the dividends and capital gains paid by it.

My holdings are performing to my satisfaction so I am not overly concerned about their overall performance. Just whether dividends would be better utilized if reinvested.

Edit**

My apologies for the confusion. By better utilized I mean used as cash for to purchase other holdings rather than reinvest in the same holding that paid the dividend.

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    "better utilized" - better than what? What else would you use the dividends for if you didn't reinvest them? Reinvesting counters the impact that the dividend has on the ETF price (since the dividend lowers the value by an equivalent amount. – D Stanley Jan 9 '18 at 19:22
  • My apologies for the confusion. By better utilized I mean used as cash for to purchase other holdings rather than reinvest in the same holding that paid the dividend. – iostreamz Jan 9 '18 at 23:01
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whether you reinvest automatically (in the same asset) or manually in some other asset is truly a personal choice; how much do you want to be involved in maintaining your portfolio? How much diversification do you desire? These are questions to answer first.

I don't think there is a "better" way to utilize dividends.

  • I guess I wasn't clear in my original post. I am trying to find a way to evaluate a specific holding to identify whether it would be better to reinvest into it or hold the dividends as cash to purchase other holdings. For example, my logic is that a holding at $20 a share may be a great candidate to reinvest dividends into, but once it reaches $50 a share, it may no longer be worth it to continue to do so. – iostreamz Jan 9 '18 at 23:08
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    @user216213 I think rocketman's point is that the decision to re_invest is no different than the decision to _invest. If you've got a particular current portfolio, and $200 to invest, you might chose to buy more of one of the stocks that you already hold, or buy new stock. That decision is the same whether the $200 came from your wages or a dividend. If that decision often seems to be "(re)invest in the stock the dividend came from" then automatic reinvestment is really just a convenience. – TripeHound Jan 10 '18 at 8:21
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If you instead take the dividends in cash, then you get NO return until you invest them in something, so yes, reinvesting them will be better than doing nothing. Another option is to use them to invest in something else, to diversify, rebalance, etc.

  • I guess I wasn't clear in my original post. I am trying to find a way to evaluate a specific holding to identify whether it would be better to reinvest into it or hold the dividends as cash to purchase other holdings. For example, my logic is that a holding at $20 a share may be a great candidate to reinvest dividends into, but once it reaches $50 a share, it may no longer be worth it to continue to do so. – iostreamz Jan 9 '18 at 23:07

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