Hi, I'm brand new to TMFPro. When setting up my brokerage account, do I want to have dividends automatically reinvested?The advantage is that there are no brokerage fees for purchasing additional shares this way. The disadvantage is that it becomes much more complicated to track gains and appreciation.So, what is the Pro Foolish approach?
Hi proLon,We do not automatically invest dividends in Pro. We don't want to end up with partial shares, or odd lots, beyond our control, since that makes it harder to use options on them. In my personal life, I also just accept dividends as cash, rather than buy partial shares automatically. Now, historically, reinvested dividends are great for your returns. So, you should be diligent to reinvest them yourself if you're not investing them automatically. For us, it's nice to have that choice of where we want to invest them; cash from dividends can also serve to support our put-writing strategies, which pay us better than a typical annual dividend in most cases.So, short answer is: We don't reinvest dividends automatically, to keep our share count and actions clearer. But we like having the cash to put to work eventually. At home, if you don't care about partial shares, and just want to reinvest on auto-pilot with dividends, I would never say don't do it... But we won't in Pro for a few service reasons. Best,JEff
Thanks Jeff. That makes sense.Previously I have only been doing automatic reinvestment in my Roth IRA, where calculating the cost basis doesn't matter. So, I don't need to change my regular account (other than adding options and margin which should be in effect later this week).Thanks again!Lon.
LonI reinvest my dividends. I don't care about partial positions, and I like not having to pay a commission on the trade. For me it has been a great way to compound my investment returns. It is completely upnto you and your individual circumstances though.DHeavy
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