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  • FIRST POST
    • stphnstevey
    • By stphnstevey 15th May 18, 3:56 PM
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    stphnstevey
    Dividend - Automatic Reinvestment?
    • #1
    • 15th May 18, 3:56 PM
    Dividend - Automatic Reinvestment? 15th May 18 at 3:56 PM
    I am trying to decide what is better (marginally) between leaving dividends on account until a new deposit (about every 3-6 months, around £15k a time) or to automatically reinvest (with iWeb it is 2% up to maximum of £5)

    What do most people find the best solution?

    Thanks
Page 1
    • TCA
    • By TCA 15th May 18, 4:10 PM
    • 1,356 Posts
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    TCA
    • #2
    • 15th May 18, 4:10 PM
    • #2
    • 15th May 18, 4:10 PM
    From a purely arithmetical point of view, it would depend on how many dividends you get and the size of them. That'll tell you what your 2 percents add up to, and therefore what you'd save by lumping them in with a quarterly or six-monthly purchase. Even at that, it might be miniscule compared to the value of your portfolio.

    Whether you'd make more money by reinvesting in the same shares (as opposed to buying more of your big purchase) is anyone's guess. Maybe you should firstly consider whether you want more of the same shares or not.

    For what it's worth I'm with iWeb and think the 2% is a bit hefty, so I'm gradually moving to holding the dividends with a view to buying when they add up to something more substantial.
    • george4064
    • By george4064 15th May 18, 4:13 PM
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    george4064
    • #3
    • 15th May 18, 4:13 PM
    • #3
    • 15th May 18, 4:13 PM
    A lot of this would depend on the logistics of your platform, some platforms its better to leave it automatic others it may be better to do it manually (scooping up other bits of money at the same time).
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    • cloud_dog
    • By cloud_dog 15th May 18, 5:02 PM
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    cloud_dog
    • #4
    • 15th May 18, 5:02 PM
    • #4
    • 15th May 18, 5:02 PM
    My opinion (for what it may be worth)... £2.5k would equate to 0.2% (£5) investment charge, which I think is not unreasonable. Obviously better rate if you re-invest £5k at a time
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    • talexuser
    • By talexuser 15th May 18, 6:07 PM
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    talexuser
    • #5
    • 15th May 18, 6:07 PM
    • #5
    • 15th May 18, 6:07 PM
    All depends on how much - I'm with iWeb and leave them automatically reinvesting. Costs me around £80 a year on around 5 grands worth of dividends so around 1.5%. £5 or so a throw is not a big deal, and I like to compare how the funds grow with dividends, but if my holdings were less in value then I would wait and reinvest a bigger lump manually to lessen the cost.
    • firestone
    • By firestone 15th May 18, 6:36 PM
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    firestone
    • #6
    • 15th May 18, 6:36 PM
    • #6
    • 15th May 18, 6:36 PM
    may depend on the amount but you could look at it as the sooner its invested the sooner your earning more div's
    • bowlhead99
    • By bowlhead99 15th May 18, 7:15 PM
    • 8,243 Posts
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    bowlhead99
    • #7
    • 15th May 18, 7:15 PM
    • #7
    • 15th May 18, 7:15 PM
    I am trying to decide what is better (marginally) between leaving dividends on account until a new deposit (about every 3-6 months, around £15k a time) or to automatically reinvest (with iWeb it is 2% up to maximum of £5)

    What do most people find the best solution?

    Thanks
    Originally posted by stphnstevey
    No point me telling you "it depends on the amounts" as everyone has already mentioned that. But just as a ready-reckoner, I would just look at the average time until you're next doing an investment anyway.

    Say you invest every June and December. The dividends arriving over the course of the year will on average be sitting idle in your platform/broker account for 3 months before you get a chance to spend then alongside new money (ie the longest they would wait is 182 days and shortest is 1 day so average is 90ish days).

    What is the annualised return your investments would have got if they were invested rather than sitting idle? Perhaps your target long term return is 8%pa. So, failing to reinvest immediately and letting them sit idle for a quarter of a year costs you 2% in missed returns on the dividend amount. But if the alternative was to pay an extra reinvestment fee of 2% on the dividend amount, it's basically the same number.

    As your dividend receipt amount gets bigger (over £250) then the fee isn't as much as 2% because it caps out at a fiver. But also you mentioned your new money purchases would be happening perhaps every 3-6 months not only every 6 months. So the money on average may not be idle for as long as 3 months, maybe only a couple of months, so the lost returns from your idle cash isn't as much as 2% either because it's not sitting idle a whole quarter.

    So as you suggested in your OP there probably isn't much in it unless/until your dividends are routinely large. Personally I don't have my dividends reinvested and just "use them up" when buying new investments or rebalancing.
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