It’s important to reinvest dividends — especially when the stock market is tumbling
Published Mon, Mar 16 2020 12 : 17 PM EDT
Anna-Louise Jackson@ALJAX 7
Both the S&P 500 and Dow Jones Industrial Average have tumbled into a bear market, and the wild ride in the U.S. stock market isn’t over yet. Even as these benchmarks swing higher or lower on a near-daily basis, though, dividend payments stay pretty constant.
Many companies and exchange-traded funds (ETFs) offer dividends, or a periodic payout of earnings that they share with investors just for being a shareholder. These payments, typically delivered once a quarter, are a perk that comes with investing, beyond just the appreciation in price of a company’s stock.
Whether the market is rising or falling, it’s a good idea to reinvest those dividends by buying more shares of the related company or fund, rather than receiving payments as a check. Doing so is a form of compounding: You’ll be able to buy more shares over time by reinvesting those dividends.
And when the market’s in a slump, reinvesting will help to set you up for an eventual rebound.
“The principle of reinvesting dividends, especially in a market where volatility rules the day, is important because you’re accumulating more shares by reinvesting at lower prices,” says David McInnis, a certified financial planner and the co-founder of East Paces Group. “The potential for future gain becomes larger by reinvesting dividends.”
Click Here to read the full article on the Acorns website.