Why I reinvest my dividends

I used to take the dividends out of my Stocks And Shares ISA to then go back into the account as part of my next share purchase… the folly of youth!

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hand holding pound notes

Image source: Getty Images.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

My attitude towards investing has, I like to think, evolved since I began contributing to a Stocks and Shares ISA.

For starters, I used to check my portfolio’s value on a near-daily basis. This would lead to consternation if it was even marginally down from the previous day.

Instead, I trained myself to only check in once or twice a month: I’m a long-term, buy-and-hold investor after all!

Another thing I used to do was jump for joy when I saw dividends roll into my ISA – and promptly transfer them into my current account, ready to spend…

Free money!, right? Well, yes – and no.

Sure, it was nice to buy a round in the pub and think that it was being paid for by money earned by the money that I had earned (still following?)

At times, I even took the dividends out of my account to then go back in as part of my next share purchase, the logic being that if I had ‘recouped’ say £50 in dividends then if I were to spend £500 next time I bought shares, only £450 of my ‘earned’ money would be contributing to that final figure.

I’m not saying it was entirely logical, but that was my thinking at the time. And to Young Sam’s credit, you’d be hard pressed to completely argue against it.

But here’s the thing. There was one year where I was fortunate enough to max out my annual ISA threshold, for a number of reasons I won’t bore you with today. So I found myself before the end of the tax year, wanting to buy more shares but finding that I had transferred in the £20k maximum already… and April was still a few months away.

Yet, if I hadn’t transferred out my dividends (only to ultimately use them as part of my spend on shares anyway) then I would have been able to invest that maximum ISA allowance AND reinvest however much I had earned in dividends on top of that

Therefore making more of my money work harder for me.

I’m not saying this is a loophole, or ‘cheat code’, or anything of the sort. In fact, I imagine most novice investors are aware of the benefits of reinvesting dividends. But if my personal cautionary tale can reach just one reader who had the same initial instincts as my younger self, then I’ll have accomplished my own – and The Motley Fool’s – goal of making the world happier, smarter AND richer.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »