Dividend Reinvestment Plan (DRIP)
InvestingDefinition
Automatically reinvesting cash dividends into additional shares of the same stock or fund, often commission-free directly through the company or your broker. Powerful for compounding — every dividend buys more shares, which generate more dividends.
About a third of S&P 500 long-run total return has come from reinvested dividends. The downside in taxable accounts: each reinvestment creates a new tax lot to track.
About a third of S&P 500 long-run total return has come from reinvested dividends. The downside in taxable accounts: each reinvestment creates a new tax lot to track.
Example
$10K invested in S&P 500 in 1990 with dividends reinvested = ~$210K by 2025. Same $10K with dividends spent = ~$140K. Reinvestment added $70K of compounding.
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