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Investing/Strategies / Retirement Investing
|Subject: Re: Dividend Distributions and 401K||Date: 12/23/1999 11:03 AM|
|Author: TMFPixy||Number: 16808 of 81641|
I have never, never seen share increases in any 401k as result of dividends or capital gains distributions.
ie Not in the same way I see them in mutual fund accounts.
The above post is an attempt to try to understand what is happening to the compounding effect of dividend reinvesting with in 401ks.
My fear is that there is not any. But I have benn called paranoid and st... for asking such a question. And I continue to ask.>>
Any money distributed to a 401k plan will increase the total value of that plan. It's totally irrelevant whether the shares you hold go up or the per share price goes up. All that counts is that the total value or each participant's account increases after the plan receives that money. Plans can and do use differing methods of computing account values after they receive a distribution of dividends, interest and capital gains. And those payments do get posted to participants' accounts. If they didn't, a whole bunch of folks would find themselves behind bars. You seem to want the shares to go up, but you see the share/unit value go up instead. Does that really make a difference?
Example: You hold 100 shares valued at $10, so your account is worth $1,000. The plan receives interest, dividends, and captial gains amounting to $1 per share, so now your account should be worth $1,100. That increase in value could be reflected by giving you another 10 shares worth $10 each or by increasing the net asset value or unit/share price of your present 100 shares to $11 each. Using either method, your account still increases in value by the $100 required because the plan received a payment of interest, dividends and capital gains.
Don't get hung up on the number of shares issue. It's the total account value that's important.
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