Dividends & Cap Gains: Cash or Reinvest?

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Ducks
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Dividends & Cap Gains: Cash or Reinvest?

Post by Ducks » Tue May 06, 2008 4:03 pm

What would make a person want to take capital gains & dividends in cash, versus reinvesting them?

My inclination is to take them in cash in our taxable account & using them to rebalance, as it seems like doing it this way would ease the burden of figuring out Schedule D every April. In a IRA type account, perhaps it makes more sense to reinvest, and use new contributions to rebalance? Am I thinking this through correctly, or is there something I am missing?
Getting our Ducks in a row since 2008.

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PiperWarrior
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Re: Dividends & Cap Gains: Cash or Reinvest?

Post by PiperWarrior » Tue May 06, 2008 4:08 pm

Ducks wrote:Am I thinking this through correctly?
Yes.

tibbitts
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yes

Post by tibbitts » Tue May 06, 2008 4:11 pm

I take taxable distributions. I use the earnings in the taxable account to make IRA contributions, which I couldn't make otherwise.

Paul

ziggy29
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Post by ziggy29 » Tue May 06, 2008 4:12 pm

I always reinvest dividends and capital gains in our IRAs and in my 401K. More often than not I take dividends and capital gains in cash in taxable accounts to simplify accounting.

bearcat98
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Post by bearcat98 » Tue May 06, 2008 7:35 pm

There are some funds that charge a purchase fee if you buy into them (emerging markets, for example), but do not charge the fee if you simply reinvest the dividends.

Otherwise, taking the cash and reinvesting yourself will be simpler for your own accounting purposes.

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PiperWarrior
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Post by PiperWarrior » Tue May 06, 2008 7:48 pm

bearcat98 wrote:There are some funds that charge a purchase fee if you buy into them (emerging markets, for example), but do not charge the fee if you simply reinvest the dividends.
I used to recommend reinvesting dividends into funds that charge a purchase fee on new purchases. But after I saw math in a recent post, I decided not to.

Emerging Markets charges 0.50%. If you invest $100K, and get 2% or so in dividends, the purchase fee on manually reinvesting dividends is:

$100,000*0.02*0.005 = $10.00

Only $10 for $100K. Now, if you have $100K in VEIEX Emerging Markets, you could convert the shares to VWO and save

$100,000*(0.0037-0.0025) = $120.00

on expenses.

Of course, you could say every little bit counts...

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grabiner
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Post by grabiner » Tue May 06, 2008 9:44 pm

PiperWarrior wrote:
bearcat98 wrote:There are some funds that charge a purchase fee if you buy into them (emerging markets, for example), but do not charge the fee if you simply reinvest the dividends.
I used to recommend reinvesting dividends into funds that charge a purchase fee on new purchases. But after I saw math in a recent post, I decided not to.

Emerging Markets charges 0.50%. If you invest $100K, and get 2% or so in dividends, the purchase fee on manually reinvesting dividends is:

$100,000*0.02*0.005 = $10.00

Only $10 for $100K. Now, if you have $100K in VEIEX Emerging Markets, you could convert the shares to VWO and save

$100,000*(0.0037-0.0025) = $120.00

on expenses.
You don't need to convert to ETF shares (and deal with the brokerage account issues, such as bid-ask spreads when you buy and sell); you can get the same savings by converting to Admiral shares. (You may still want to convert before selling, in order to avoid the redemption fee.)
Wiki David Grabiner

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