Investing Insights This Dividend Investing Strategy Deserves a Second Look
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Jul 18, 2025 Join Amy Arnott, a portfolio strategist from Morningstar Inc., as she dives into the nuances of dividend investing. She explains when reinvesting dividends can truly pay off and when it might be wise to cash out instead. Discover the tax implications of different accounts and the critical differences between taxable and non-taxable dividends. Learn about the importance of record-keeping and how your stock holding duration affects your tax outcomes. Amy offers valuable insights for long-term investors looking to optimize their strategies.
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Reinvest Dividends for Growth
- Reinvest dividends if your goal is long-term growth to maximize compounding benefits.
- Dividends comprise about 4% of the average 10% annual stock market return, enhancing growth when reinvested.
When Not to Reinvest Dividends
- Avoid reinvesting dividends when you need income to cover living expenses in retirement.
- Stop reinvesting if you want to prevent over-concentration in one stock or simplify tax record keeping.
Dividend Reinvestment Tax Differences
- Tax-deferred accounts automatically reinvest dividends without tax concerns until withdrawal.
- In taxable accounts, reinvested dividends increase the cost basis and require careful tracking for taxes.