Don't lose money unnecessarily. Why is dividend reinvestment important?
Dividends are a nice part of investing. You can use them as passive income or use their power to reinvest them to increase your total return. And that power is truly enormous!
Everyone can probably think of the fact that by reinvesting dividends, we increase our total return in the first place. But this strategy has several other advantages.
Reinvesting dividends brings a number of positives, such as capital accumulation, the ability to achieve a higher total return, lower capital gains taxes and inflation protection. In the following article, we will therefore focus on these aspects and show how dividend reinvestment can affect the long-term return on equity investments.
- Reinvestment enables capital accumulation. When an investor reinvests dividends, he receives additional shares in the company. This helps him to accumulate capital. The more shares a person owns, the greater his share of the company's profits.
Imagine you invest $10,000 in shares of a company that pays a 5% dividend, or …
Dividends go into my broker's account - I never withdraw from there, it all goes back in.
I reinvest it on principle alone, the amount of my dividend income is not so high that it makes sense to withdraw it at all.
In the long run, it can do a lot. It doesn't seem like it at first, but it will help and significantly.
I don't invest in two companies
If you don't need liquidity, always reinvest!