No. of Recommendations: 4
Do people recommend reinvesting or taking the distributions from bond funds in today's market?

This board doesn't have a FAQ, so there is no FAQ to search.

I am reasonably confident to state that the answer to your question is: It depends!

Would you be buying more of that fund today? If so, it is reasonable to reinvest dividends.

Would you be buying more of another fund today and not adding to this fund? If so, it may be more reasonable to take the dividends and use them to buy more of the desired fund.

Do the funds have front loads or back loads? If so, the front loads might be waved if reinvested, or with back loads the time period before conversion for reinvested dividends may be inherited from the shares producing the dividends (e.g., if you have held Class B shares for 2 years and it is 5 years total to conver to Class A with lower 12B-1 fees, meaning 3 more years before conversion, reinvested dividends might inherit the holding period for purposes of computing the load so shares purchased with reinvested dividends would likewise have only 3 more years before conversion, not 5). Note: details on how reinvested dividends are treated vary between fund families and possibly between funds of the same fund family. This is different from how the IRS treats reinvested dividends. (IRS: reinvested dividends in a personal (taxable) account are treated as income immediately followed by the purchase of new shares.)

What I am doing is allowing all dividends to be reinvested, and then I am nudging my taxable investments back to balance by directing new money towards the fund the most lacking as per my asset allocation plan. However, if my porfolio gets out of balance enough (off by more than 5%) and new money wouldn't have a hope of making a dent, I would consider redirecting dividends to the funds most lacking. New money and redirecting dividends are more tax efficient than actually selling appreciated shares in a personal (taxable) account.

In a "tax favored" account (IRA, 401(k), 403(b), etc.), there are no tax considerations.
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