10-09-2013, 04:44 PM
Over in another thread, Alex made this point:
I think I am starting to come around on this. As I said earlier, I mostly reinvest automatically at the moment. And I’ve thought of one new wrinkle supporting automatic reinvestment, which is that I find it hard psychologically to put new money in a stock at prices above my average cost per share, thus “averaging up” my price. But if I have chosen a winner and still believe in it, I should have no hesitation to do so. Automatic reinvestment of dividends is a way to accomplish this.
On the other hand, I think Alex makes a pretty good point. The dividend payment date is completely arbitrary. If I am hot for PSX right now and just neutral on JNJ, why would I sit idly by and let my JNJ dividend buy more JNJ shares today? I wonder if there is some psychology at play here, where I tend to think of the JNJ dividend as “JNJ money” that is appropriately used for more JNJ shares. Really, though, the moment they pay the dividend, it is just “Kerim’s money” and I should put it to the best use at the moment.
Perhaps one of the biggest advantages that automatic reinvestment has going for it is that your money stays invested and you do not miss out on gains (and more dividends!) while dithering around with a bunch of cash on the sidelines. However I am comfortable enough with this style of investing now that I am not worried about this at all. I find I am usually pretty eager to pick up a few shares of something or other.
I do still feel like there is a logistical problem in that my dividend growth portfolio is spread among different accounts (taxable, rollover, roth, etc.), which makes the manual reinvestment approach a little less simple and appealing. But there is no reason I couldn’t do a hybrid of some kind. As usual, no decisions made as yet, but I’ll keep you posted.
Feedback appreciated.
(10-09-2013, 07:53 AM)hendi_alex Wrote: I also have an issue with dividend reinvestment, unless the shares are bought at a significant discount. It makes no sense to me for a person to opt for dividend reinvestment because those accumulations would rarely come on a day that, if holding investment cash, you would have decided to buy shares of that particular company. So if you would not put fresh cash into shares on that day, why have buy them with dividend cash. IMO it is much better to let the dividends accumulate, and then make a well considered investment with the money. If the reinvestment shares come at a 5% discount, then perhaps that would tip the scale toward direct investing with the dividends.
I think I am starting to come around on this. As I said earlier, I mostly reinvest automatically at the moment. And I’ve thought of one new wrinkle supporting automatic reinvestment, which is that I find it hard psychologically to put new money in a stock at prices above my average cost per share, thus “averaging up” my price. But if I have chosen a winner and still believe in it, I should have no hesitation to do so. Automatic reinvestment of dividends is a way to accomplish this.
On the other hand, I think Alex makes a pretty good point. The dividend payment date is completely arbitrary. If I am hot for PSX right now and just neutral on JNJ, why would I sit idly by and let my JNJ dividend buy more JNJ shares today? I wonder if there is some psychology at play here, where I tend to think of the JNJ dividend as “JNJ money” that is appropriately used for more JNJ shares. Really, though, the moment they pay the dividend, it is just “Kerim’s money” and I should put it to the best use at the moment.
Perhaps one of the biggest advantages that automatic reinvestment has going for it is that your money stays invested and you do not miss out on gains (and more dividends!) while dithering around with a bunch of cash on the sidelines. However I am comfortable enough with this style of investing now that I am not worried about this at all. I find I am usually pretty eager to pick up a few shares of something or other.
I do still feel like there is a logistical problem in that my dividend growth portfolio is spread among different accounts (taxable, rollover, roth, etc.), which makes the manual reinvestment approach a little less simple and appealing. But there is no reason I couldn’t do a hybrid of some kind. As usual, no decisions made as yet, but I’ll keep you posted.
Feedback appreciated.