Dividend Reinvestment Plan (DRIP) in a Taxable Account - Good or Bad Idea?

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teelainen
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Joined: Fri Feb 01, 2019 1:17 am

Dividend Reinvestment Plan (DRIP) in a Taxable Account - Good or Bad Idea?

Post by teelainen » Tue Jun 11, 2019 11:04 pm

For a taxable account, is it a good idea to turn OFF the automatic Dividend Reinvestment Plan?

Wouldn't that make tax tracking easier? (because you won't have as many lots with a different cost basis)

Any other advantages or disadvantages?

DEBTINATOR
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Joined: Thu Oct 20, 2011 8:05 pm

Re: Dividend Reinvestment Plan (DRIP) in a Taxable Account - Good or Bad Idea?

Post by DEBTINATOR » Tue Jun 11, 2019 11:20 pm

teelainen wrote:
Tue Jun 11, 2019 11:04 pm
For a taxable account, is it a good idea to turn OFF the automatic Dividend Reinvestment Plan?

Wouldn't that make tax tracking easier? (because you won't have as many lots with a different cost basis)

Any other advantages or disadvantages?
Generally you turn it off and use the dividends to rebalance.

Yes it would make tax tracking easier, but software allows you to import this stuff so it’s not a big deal.

One example each way- i hold a vanguard ca bond at TD Ameritrade. I reinvest the dividends to save on ticker charges.

If you don’t reinvest dividends, then you’ll have to manually make a rebalancing trade, allowing room for behavioral bias to creep in.

sarabayo
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Re: Dividend Reinvestment Plan (DRIP) in a Taxable Account - Good or Bad Idea?

Post by sarabayo » Wed Jun 12, 2019 1:17 am

I generally invest, on every payday, all the excess cash that I find sitting in my bank account that day. I send dividends straight to my bank account, and so they get included in my cash surplus and are reinvested on my next payday. This keeps the number of tax lots down, and it also makes sure that my dividend reinvestments go towards the most underweighted asset class in my portfolio (just like my other contributions do).

Topic Author
teelainen
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Re: Dividend Reinvestment Plan (DRIP) in a Taxable Account - Good or Bad Idea?

Post by teelainen » Wed Jun 12, 2019 8:19 am

DEBTINATOR wrote:
Tue Jun 11, 2019 11:20 pm
One example each way- i hold a vanguard ca bond at TD Ameritrade. I reinvest the dividends to save on ticker charges.

If you don’t reinvest dividends, then you’ll have to manually make a rebalancing trade, allowing room for behavioral bias to creep in.
DEBTINATOR, what do you mean by "save on ticker charges" ?

asif408
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Location: Florida

Re: Dividend Reinvestment Plan (DRIP) in a Taxable Account - Good or Bad Idea?

Post by asif408 » Wed Jun 12, 2019 9:03 am

I think it depends on your situation. If you aren't planning to spend the dividend money, I find it simpler to reinvest. Because if you're going to reinvest anyway, it limits any potential delays in that process, as time in the market is one of the most important determinants of returns. I don't worry so much about multiple tax lots because software can import and export that information from most brokers nowadays.

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Flobes
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Re: Dividend Reinvestment Plan (DRIP) in a Taxable Account - Good or Bad Idea?

Post by Flobes » Wed Jun 12, 2019 10:11 am

teelainen wrote:
Tue Jun 11, 2019 11:04 pm
For a taxable account, is it a good idea to turn OFF the automatic Dividend Reinvestment Plan?

Any other advantages or disadvantages?
If you're planning to Tax Loss Harvest (and why wouldn't you?), then automatic dividend reinvestment can trigger wash sale vulnerabilities.

So it's a good idea to turn off the auto dividend reinvestment.

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