Not reinvesting dividends

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vandering
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Not reinvesting dividends

Post by vandering » Mon Jun 19, 2017 12:42 pm

I understand that the majority of Bogleheads own individual stocks in their portfolios as I saw it on one of the threads here (67% +/-).
Does anyone else think it might be prudent to "turn off auto re-invest" of dividends to allow cash to accumulate in settlement MM account as
Shiller's CAPE is 30X + currently? I generally keep a buy list of stocks I've researched and go in at a predetermined price for yield of 4.5-5%.
The last time I've had a dry spell lasting this long where everything looked overvalued was October 2007.
I'm curious if anyone else feels the same?

runner3081
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Re: Not reinvesting dividends

Post by runner3081 » Mon Jun 19, 2017 3:04 pm

Sure, if you want to try and predict the future and time the market.

NibbanaBanana
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Re: Not reinvesting dividends

Post by NibbanaBanana » Mon Jun 19, 2017 3:11 pm

Yep. I stopped reinvesting dividends from my individual stocks and broad market funds about a year ago. Reinvesting in mostly bond and balanced Vanguard funds. But I'm 90% stocks and wanted to ratchet down on risk a little. But yes, I think the broad markets and particularly growth are selling for high prices and so am market timing. I did buy a little of MMM and ADP for the above market (and hopefully increasing) dividends at market multiples.

Dandy
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Re: Not reinvesting dividends

Post by Dandy » Mon Jun 19, 2017 4:18 pm

I'm fortunate that my taxable equities have large cap gains. The downside is that my overall equity allocation is near the top of my limit. So, I have the taxable equity distributions set to cash to avoid further equity risk. If that were not the case and I was in the accumulation stage I would have them reinvested.

jebmke
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Re: Not reinvesting dividends

Post by jebmke » Mon Jun 19, 2017 4:29 pm

I spend my dividends. If I don't need them, they go into a bond fund. No cash.
When you discover that you are riding a dead horse, the best strategy is to dismount.

cody69
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Re: Not reinvesting dividends

Post by cody69 » Mon Jun 19, 2017 4:47 pm

I am in the accumulation phase anI do not automatically reinvest dividends in my taxable account as I want control over the tax lots in the funds I own (no individual stocks). I use the collected dividends to rebalance per IPS.

In the tax sheltered account, I do automatically reinvest dividends and interest... mostly bond funds.

anonsdca
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Re: Not reinvesting dividends

Post by anonsdca » Mon Jun 19, 2017 5:06 pm

vandering wrote:I understand that the majority of Bogleheads own individual stocks in their portfolios as I saw it on one of the threads here (67% +/-).
Does anyone else think it might be prudent to "turn off auto re-invest" of dividends to allow cash to accumulate in settlement MM account as
Shiller's CAPE is 30X + currently? I generally keep a buy list of stocks I've researched and go in at a predetermined price for yield of 4.5-5%.
The last time I've had a dry spell lasting this long where everything looked overvalued was October 2007.
I'm curious if anyone else feels the same?
Since your talking about individual stocks, I personally always have the "auto re-invest" off. I want the dividends to be placed in my account, and along with any additional funds I add, I then make the decision of which company (current position or watchlist) represents the best value at that time.

RAchip
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Re: Not reinvesting dividends

Post by RAchip » Mon Jun 19, 2017 6:21 pm

I do exactly what anonsdca does. I never auto eeinvest dividends. I take the cash and buy on my terms.

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oldzey
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Re: Not reinvesting dividends

Post by oldzey » Tue Jun 20, 2017 1:00 pm

In my 3 investment accounts I do the following:

403b (tax-deferred) - automatically reinvest dividends
Roth IRA (tax-advantaged) - automatically reinvest dividends
Taxable - dividends are automatically deposited directly to my checking account
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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BeBH65
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Re: Not reinvesting dividends

Post by BeBH65 » Tue Jun 20, 2017 1:45 pm

vandering wrote:I understand that the majority of Bogleheads own individual stocks in their portfolios as I saw it on one of the threads here (67% +/-).
Not sure this is correct. I would guess that most of the people on this forum own stock through (index) funds.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

vandering
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Re: Not reinvesting dividends

Post by vandering » Tue Jun 20, 2017 1:52 pm

Do you invest in individual stocks?


Funds only
92
43%
Serious stock position
47
22%
Small stock position
76
35%
Total votes: 215
This from March 29,2015.
In a later thread asking the same question (2016) with a larger sampling size, I saw 67% rather than the 57% you see here, just can't locate it. I'll keep looking. :D

vandering
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Re: Not reinvesting dividends

Post by vandering » Tue Jun 20, 2017 2:00 pm

Thank-you for all Thoughtful replies. I really appreciated some of your perspectives especially after -tax v. tax deferred.
I've got too many individual positions to flip it to "deposit to core account" ordinarily but did so across the board in May
when stocks that I own and stocks on my watchlist became so overvalued. I did initiate a position in XOM a few months ago
and will add to that with continued pull-backs. I realize the payout ratio is a bazillion.

minesweep
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Re: Not reinvesting dividends

Post by minesweep » Tue Jun 20, 2017 2:08 pm

vandering wrote:Do you invest in individual stocks?


Funds only
92
43%
Serious stock position
47
22%
Small stock position
76
35%
Total votes: 215
This from March 29,2015.
In a later thread asking the same question (2016) with a larger sampling size, I saw 67% rather than the 57% you see here, just can't locate it. I'll keep looking. :D
Poll: Do Bogleheads own Stocks?

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David Jay
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Re: Not reinvesting dividends

Post by David Jay » Tue Jun 20, 2017 2:53 pm

vandering wrote:I understand that the majority of Bogleheads own individual stocks in their portfolios as I saw it on one of the threads here (67% +/-)
You have to be very careful about polls like that one for (2) reasons:
1. Self-selection: Only those who think individual stocks are interesting will even click on the thread. So there will be a much higher level of people reading the thread who are interested in individual stocks than the average at BH.
2. Sample size: Note that only 371 people (as of the afternoon of May 20th) had responded out of the tens of thousands of registered BH members.

What is the actual percentage? I don't know. But I suspect it is well less than half. I hold a few individual stocks (about 5% of portfolio) but those are all from pre-BH days. It is my intent to simplify in retirement, likely to a single LifeStrategy fund.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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TD2626
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Re: Not reinvesting dividends

Post by TD2626 » Tue Jun 20, 2017 9:23 pm

David Jay wrote:
vandering wrote:I understand that the majority of Bogleheads own individual stocks in their portfolios as I saw it on one of the threads here (67% +/-)
You have to be very careful about polls like that one for (2) reasons:
1. Self-selection: Only those who think individual stocks are interesting will even click on the thread. So there will be a much higher level of people reading the thread who are interested in individual stocks than the average at BH.
2. Sample size: Note that only 371 people (as of the afternoon of May 20th) had responded out of the tens of thousands of registered BH members.

What is the actual percentage? I don't know. But I suspect it is well less than half. I hold a few individual stocks (about 5% of portfolio) but those are all from pre-BH days. It is my intent to simplify in retirement, likely to a single LifeStrategy fund.
I, too, am suspicious of the 67% number (which is now down to 61% last I checked). Also, mabye many own a few "legacy" stocks or are paid by employer stock. Or they own one share (for discounts or as a gift). Or they have a tiny allocation to individual stocks.

Many of those with substantial, non-legacy individual stock positions are attempting to manage their own index fund like passive, buy-and-hold, diversified portfolio. Even they often have index funds in addition to this.

I suspect few here are speculating or market timing with large amounts of money - because it is too risky and dangerous.

Not reinvesting dividends is a good way of reducing exposure to legacy individual stock positions or employer stock without having to incur the capital gains taxes of large, sudden sales. I can also see some people not reinvest because they need to use/spend the income. Or, they don't reinvest so they can use the dividends to rebalance all at once at the end of the year to avoid creating small tax lots throughout the year. I haven't heard many with the OP's strategy, though. It can good to consider all sides, though. It would be interesting to hear what advocates of "dry powder" or "tactical asset allocation" strategies are doing and thinking in order to get a broader perspective. (I feel those strategies are too speculative but they are interesting to learn about).

Dry powder accumulation seems like what the OP is suggesting.

Indexboss
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Re: Not reinvesting dividends

Post by Indexboss » Thu Jun 22, 2017 3:23 pm

In my Roth IRA, I reinvest. In my taxable EFT account, I transfer to settlement fund. I do it to avoid tax lots, but to be honest that is only based off of what I have read here. I do not quite understand that.

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Toons
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Re: Not reinvesting dividends

Post by Toons » Thu Jun 22, 2017 4:06 pm

Reinvest.
Put the compounding machine on auto-pilot :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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LadyGeek
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Re: Not reinvesting dividends

Post by LadyGeek » Thu Jun 22, 2017 6:28 pm

vandering wrote:I understand that the majority of Bogleheads own individual stocks in their portfolios as I saw it on one of the threads here (67% +/-).
Does anyone else think it might be prudent to "turn off auto re-invest" of dividends to allow cash to accumulate in settlement MM account as
Shiller's CAPE is 30X + currently? I generally keep a buy list of stocks I've researched and go in at a predetermined price for yield of 4.5-5%.
The last time I've had a dry spell lasting this long where everything looked overvalued was October 2007.
I'm curious if anyone else feels the same?
The poll is here: Poll: Do Bogleheads own Stocks?

Slow down, stop. That poll absolutely does not make that conclusion.

- The poll represents 0.67% of the total membership population, statistically insignificant.
- It's uncontrolled, meaning anyone with a link can vote (anyone in the world can find it via google).
- Every investor has a different situation. What's right for you may not be right for someone else.

Please ignore that poll. My post here bears repeating: Re: Poll: Do Bogleheads own Stocks?
LadyGeek wrote:For the record, the site owners have polls disabled for this reason: Subject: Polls Disabled May 01, 2015
Alex Frakt wrote:After consultation with the Advisory Board, I have disabled polls on this site.

The general problem with self-selecting polls is that the results only tell you only about those who chose to respond to the poll. They cannot be relied on as reflecting the broader will of the participants of this forum, nor can they give any clear insights into the question asked. With written answers (beyond the pointless "+1"), a reader at least has the opportunity to review the respondent's reasoning for his or her answer. In addition to the lack of utility of polls, they required a disproportionate amount of moderator effort and were usually in violation of our requirements that posts be both personal and actionable.

I do understand some polls have a certain entertainment value, but our resources are limited and we prefer to focus on areas where we feel we can do the most direct good.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

TropikThunder
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Re: Not reinvesting dividends

Post by TropikThunder » Thu Jun 22, 2017 8:16 pm

Indexboss wrote:In my Roth IRA, I reinvest. In my taxable EFT account, I transfer to settlement fund. I do it to avoid tax lots, but to be honest that is only based off of what I have read here. I do not quite understand that.
Per TD Ameritrade, "a tax lot is a record of a transaction and its tax implications, including the purchase date and number of shares." Each time you reinvest a dividend, it counts as a small purchase, same as if you had made an elective purchase with cash. The cost basis (purchase price) for those shares is what will determine the eventual capital gain :beer or loss :oops: when you sell them. Before brokerages tracked all that for you, it was an inconvenience to manage which shares you were selling and for how much of a gain or loss. Now, it's less of an issue and using spec ID lets you pick which exact shares you sell. Then again, if you use average cost or first-in-first-out, none of this matters.

LeeInTN
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Re: Not reinvesting dividends

Post by LeeInTN » Fri Jun 23, 2017 5:15 pm

We don't own individual stocks but have always used dividends delivered as cash for re-balancing purposes. Now that we are semi-retired, we use the dividends for living expenses. (We really needed the hit we got this week) Our bond funds are in IRAs and of course those dividends are reinvested, but the stock funds that throw off dividends keep us alive at present.

hulburt1
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Re: Not reinvesting dividends

Post by hulburt1 » Fri Jun 23, 2017 5:26 pm

I put in money fund then move to Roth. Once my Roth fund is turning in 1000 a month I will use my Roth dividends to live in tax free.

blevine
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Re: Not reinvesting dividends

Post by blevine » Sat Jun 24, 2017 11:18 am

I don't reinvest dividends in taxable more for avoidance of annoying wash loss sales resulting
from a small purchase related to reinvesting dividends when I may sell within +/- 30 days of the dividend.

I also do not reinvest because I prefer over time to use reinvestment to re-balance.
Will eventually take accumulated dividends and put it to work where needed, per AA and/or spending $ needed.
Does not matter where, cash is fungible.

To me this is same for stocks, funds, ETF etc.

SpideyIndexer
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Re: Not reinvesting dividends

Post by SpideyIndexer » Sat Jun 24, 2017 1:56 pm

I have stopped reinvesting dividends for the reasons previously mentioned, except in a couple of cases where I hold Vanguard securities at Fidelity which would have transaction fees were I to buy or sell them. As most of you know, there is no transaction fee when the dividends are reinvested, and I would prefer to see these holdings grow.

I'm not yet at the stage where I am living off my investments. So I have been watching my AA and using dividends to buy what is low, in other words a low effort rebalancing.

However, I may rethink this. It requires some time to research what to buy with the dividends every quarter. If for example you have dividends of $1000 and the differential between a few asset classes is 2%, the benefit is only about $20.

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