Reinvesting Dividends

[Rianne]

Some calculators ask for yearly savings contributions. Would I consider reinvesting dividends as investment savings? I figure we’re not spending the dividends but buying more mutual fund shares.

 

[jazz4cash]

I would count them as savings but that is a fairly small amount for me. Once we are fully and completely retired they will no longer be reinvested so I would most likely ignore them.

 

[jebmke]

For equities I would definitely not since the price of the stock drops by the amount of the dividend. I could argue bonds either way.

When I was in accumulation mode, the only net savings that mattered was savings coming from our income.

 

[pb4uski]

Some calculators ask for yearly savings contributions. Would I consider reinvesting dividends as investment savings? I figure we’re not spending the dividends but buying more mutual fund shares.

No, when they ask for savings they are asking about additional contributions or investments. They assume that income is reinvested.

 

[kgtest]

In the calculator I built myself I have the dividends just included as part of the total return.

investment savings almost implies there is a value that is being saved by participating in investing Or perhaps a "savings" or "money market" type of investment account?? I might need more context as I feel like I am guessing.

 

[Rianne]

No, when the ask for savings they are asking about additional contributions or investments. The assume that income is reinvested.

Wouldn’t our IRR be different if we took and spent the dividends as income? Like the $ is working for us and dividends are our income. Our yearly dividends, ordinary + qualified are approximately $25K. It’s kind of like savings. If I earned a salary and invested a portion of that, it’s considered savings or investment savings, right? Profit sharing kind of thing.

That’s a 45/50 portfolio.

 

[pb4uski]

I wouldn't think so, assuming that in each case the withdrawals are the same. If you reinvest dividends then you would have to make withdrawals for spending wouldn't you?

If you had a salary and deductions for tax-deferred savings then that obviously would be savings, no different than if you had no deductions from your salary but made investments into an IRA.

 

[mathjak107]

dividends are a wash if you reinvest putting you back to pretty much the same dollars you had invested before the dividend and reduction , and a withdrawal from your investment if you don’t

 

[Midpack]

No, when they ask for savings they are asking about additional contributions or investments. They assume that income is reinvested.

+1. If you’re accumulating, unless specifically asked a calculator would assume dividends are reinvested and yearly savings contributions would be additional new money contributions or investments. If you’re retired or decumulating it doesn’t make much difference any more.

 

[mathjak107]

+1. If you’re accumulating, it’s assumed dividends are reinvested and yearly savings contributions would be additional contributions or investments. If you’re retired or decumulating it doesn’t make much difference any more.

new contributions is new additional money increasing the dollars working for you .

dividends are the company handing you back a piece oif your investment from your share price reducing what you have working for you .

reinvesting merely hands them back the same dollars you had , it’s not an addition .

if you don’t out it back it’s a subtraction.

it’s like pulling say 100 dollars out of your portfolio, deciding you don’t want it and putting it back setting you back to the same dollars you had .

just thing of a fund pay out ..

you go to sleep with x invested , get y as a dividend and your balance is that mush lower .

if you reinvest you have the same dollars compounding as the day before only rearranged …like a stock split is more shares same follars working for you

 

[Midpack]

new contributions is new additional money increasing the dollars working for you .

dividends are the company handing you back a piece oif your investment from your share price reducing what you have working for you .

reinvesting merely hands them cack the same dollars you had , it’s not an addition .

if you don’t out it back it’s a subtraction

So you’re agreeing?

 

[mathjak107]

no , new contributions is adding more money .

reinvesting the dividend is not adding more money , it’s putting back what you already had subtracted out

 

[mathjak107]

as an example , if you don’t put the dividend back they hand you then xom would have 10k invested in 1985 worth just 168,693 as each dividend is a withdrawal.

no different then pulling the same dollars out of your portfolio, reducing the amount being compounded on vs not pulling the money out

if you reinvested its 654,412.

because dividends are taxed in full , then they are treated like new money going in for tax purposes so it raises the cost basis , but in reality it’s not new money .

it’s just putting the withdrawal back in giving you the same dollars invested you had pre ex div

 

[Midpack]

no , new contributions is adding more money .

reinvesting the dividend is not adding more money , it’s putting back what you already had subtracted out

I’m pretty sure we’re saying the same thing. The OP is asking for entry into an online calculator. If she enters dividends as “yearly savings contributions,” dividends will be double counted. As you and I both noted, yearly savings contributions are new money above and beyond dividends.

 

[mathjak107]

I’m pretty sure we’re saying the same thing…

maybe ….i think it depends how i read what you wrote .

if i assume that you meant the calculator doesn’t count the reinvested money as new money , then yes we are saying the same thing

 

[Midpack]

maybe ….i think it depends how i read what you wrote .

if i assume that you meant the calculator doesn’t count the reinvested money as new money , then yes we are saying the same thing

We are.

 

[mrfeh]

Some calculators ask for yearly savings contributions. Would I consider reinvesting dividends as investment savings? I figure we’re not spending the dividends but buying more mutual fund shares.

No. Dividends are a component of portfolio growth.

 

[mathjak107]

portfolio growth only comes from interest or share price appreciation…

dividends are a withdrawal from the already existing account balance .

if you put it back in as a reinvestment it’s a wash

 

[target2019]

Wouldn’t our IRR be different if we took and spent the dividends as income? Like the $ is working for us and dividends are our income. Our yearly dividends, ordinary + qualified are approximately $25K. It’s kind of like savings. If I earned a salary and invested a portion of that, it’s considered savings or investment savings, right? Profit sharing kind of thing.

That’s a 45/50 portfolio.

XIRR calculation takes earned dividends into account.

It uses all inflows and outflows, as well as dates, and spits out a performance number for you.

 

[mathjak107]

portfolio visualizer gives you an option to include reinvesting them back in or just taking them as a withdrawal

 

[target2019]

XIRR calculation takes earned dividends into account.

It uses all inflows and outflows, as well as dates, and spits out a performance number for you.

Talking to myself? Yes!

XIRR is worth an investigation. Google Sheets or Excel will work.

You download your transactions for an individual stock, and review each line. You do have to understand each transaction, and perhaps modify or add information. For example, your last transaction should be a negative number for the entire balance on the end date of the period you're interested in.