As an investor, should you reinvest dividends?
There are several benefits to reinvesting dividends:
- avoiding commissions and fees on buying more stock;
- helping you to save money and reinvest it in your portfolio;
- encouraging you to reinvest money into the “winning” stocks that pay dividends.
In short, unless you need the money for a more important purpose, it’s a good idea to reinvest.
However, also remember to periodically rebalance your portfolio. This means that you should look at your portfolio at least once a year to verify that it is properly diversified and has a healthy mix of growth and safer investments.
This could be painful – it’s not easy to take money out of the stocks that have increased in value, and perhaps put them into stocks and bonds that have not performed as well. However, this is a simple and systematic way to lock in the gains from higher-performing stocks and reinvest them in safer investments.
[Image: Look after the pennies and the pounds will look after themselves by Mukumbura, on Flickr]