Q. I have a diversified portfolio and have dividend distributions that I don't need to use. Should I put the dividend back to the fund that pays it?
A. Most brokers will ask you how do you want them to handle your dividends: Pay in Cash or Reinvest? Most people, thinking they don't need the money, choose Reinvest.
That is a mistake!
The best way to treat dividends is to put all of the dividends from all of your funds to a cash account, then put the cash to the fund or funds that need more investment. In this way, one dividend paying fund doesn't necessarily grow out of its appropriate weight in your portfolio, also your additional funds (dividends) get to be put at the most appropriate place, this is important and with long term effect, because study has shows over 1/3 of stock market's growth comes from dividends, so it pays to invest that dividend carefully!
A. Most brokers will ask you how do you want them to handle your dividends: Pay in Cash or Reinvest? Most people, thinking they don't need the money, choose Reinvest.
That is a mistake!
The best way to treat dividends is to put all of the dividends from all of your funds to a cash account, then put the cash to the fund or funds that need more investment. In this way, one dividend paying fund doesn't necessarily grow out of its appropriate weight in your portfolio, also your additional funds (dividends) get to be put at the most appropriate place, this is important and with long term effect, because study has shows over 1/3 of stock market's growth comes from dividends, so it pays to invest that dividend carefully!
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