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DRIP vs Manual Reinvestment of Dividends

This one can be argued to the moon and back and never come out with a clear cut winner. They’re both totally effective and viable options, it’s just a matter of preference.

DRIP stands for “Dividend Reinvestment Plan” and basically is something you set up on your brokerage account to have all your dividends automatically reinvested into the stocks they came from. Doing this creates a compounding effect where your dividends end up buying more shares in the company which increases position and thus, increases your dividend each period and just snowballs bigger and bigger over time. It’s a great method if you’d rather not actively manage your portfolio or just don’t have the time.

Manual reinvesting is where you take your dividends and reinvest them into whatever stock you like in your portfolio. The positive to this is that you can hold your dividends for better opportunities to buy stocks at lower prices to maximize your gains. You also retain the option of keeping your dividends in the event an emergency comes up and you could use the money. Either way you go, so long as you’re reinvesting dividends, your portfolio is going to grow far faster than just funding it with your own money. If you can, always reinvest for maximum growth.

Personally, I utilize both methods. In my dividend focused portfolio, I manually reinvest while my IRA utilizes the DRIP and reinvests automatically. Both are working out phenomenally.