The Money Plan Book

Investment 101: Reinvesting Dividends at Fidelity

Achieving financial freedom often requires a sound investment strategy, encompassing a diverse portfolio and an understanding of key investing terms and practices. In this piece, you will gain a valuable lesson in “Investment 101” with emphasis on reinvesting dividends at Fidelity.This knowledge echoes the insights presented in The Money Plan Book, underscoring the importance of grasping solid investment principles as a path towards financial success.

Understanding Dividends

Before discussing the process of reinvestment, it is crucial to understand what dividends are. Essentially, dividends are profits distributed by a corporation to its shareholders. When a business earns revenue, it can decide to distribute a portion of these earnings among shareholders in the form of dividends.

The Power of Reinvestment

Now here comes the interesting part – reinvesting your dividends. This means taking the dividends you have earned and using them to purchase more stocks or shares in the company. The beauty of this is you’re using your earnings to make even more earnings! It’s like stacking building blocks towards your financial growth.

Fidelity: A Sound Choice

Fidelity Investments stands out as one of the world’s largest asset management firms dedicated to helping more than 23 million people invest their own life savings, 20,000 businesses manage employee benefit programs, and provide 12,500 financial advisory firms with investment and technology solutions.

Setting Up Your Account

To start reinvesting dividends with Fidelity, you first need to have an account. If you do not have one already, setting up an account is straightforward and largely digitised process which should take no longer than 15 minutes if you are prepared with the needed information.

Enabling Dividend Reinvestments

Once you have set up your investment account with Fidelity, your next step will be to configure your account settings to allow for dividend reinvestments. This can be achieved by navigating to the ‘Account Features’ section, choosing ‘Brokerage & Trading’, and then selecting ‘Dividends & Capital Gains’.

The Transaction Process

With the reinvestment option enabled, every time one of your investments pays a dividend, Fidelity will automatically use this payment to purchase more of the same investment. Note: there is no transaction cost for reinvesting dividends on Fidelity’s platform.

Growth Through Reinvestment

As you continue to reinvest dividends over time, each new purchase increases the number of shares you own. This means that each future payout from profits could potentially be larger than the last since it will be dispersed across more shares. In longer-term outlooks, this translates to exponential growth for your portfolio.

Risks Associated With Reinvestment

No investment action comes without its risks. The main risk associated with dividend reinvestment is that by investing in more of what you already own, you may end up with a less diversified portfolio. Market volatility or factors specific to the company could result in losses in share value which would also negatively affect your reinvested dividends.

Consider Your Personal Investment Goals

Determining whether or not to reinvest dividends should be based upon individual financial goals and risk tolerance. For those looking for consistent income from their investments or immediate cash flow, taking dividends as cash might make more sense. However, for those trying to grow their investment over time and who can tolerate a bit more risk, reinvestment could be a suitable choice.

The Wholesome Financial Picture

Reinvestment is not just limited to dividends. You can also opt to reinvest capital gains. Also, remember the importance of diversification in your portfolio. While reinvesting helps to increase the number of shares you own, you should continuously strive for a balanced portfolio that aligns with your personal financial objectives.

Wrapping Up

Hopefully, this simple guide has clarified the concept of dividend reinvestment through Fidelity and aided you in making wiser investment decisions. The key takeaway is that while reinvesting dividends can provide continuous growth for your investment portfolio, it should be done in line with your individual financial goals and your ability to manage risk. Always remember, successful investing requires knowledge, strategy, and patience.

About Post Author

Follow Us