Quick definitionCopy link to section
Reinvesting is the practice of using the profits made from an investment to purchase additional shares instead of cashing out.
Key detailsCopy link to section
- Reinvesting is the practice of buying additional shares and/or units of an investment from the profits earned from that investment
- Instead of cashing them out, reinvesting earned profits is an effective strategy to increase the value of investments (i.e. stocks, bonds, ETFs, mutual funds) over time
- Earned profits that can be reinvested include dividends, interest, and any other form of distribution derived from the ownership of the investment
What is reinvesting?Copy link to section
When you make a profit on an investment – in the form of dividends, interest, or any other form of distribution derived from owning the investment – using that profit to buy additional shares/ units of the investment is referred to as reinvesting. If not reinvested, these profits could be cashed out instead.
Investments such as stocks, bonds, ETFs, mutual funds deliver profits that investors strategically reinvest into the same with the view of greater profits in the long run. Investors reinvest to increase the value of their investments over time.
There are automated reinvesting options available to investors in the market. For example, some companies offer automatic dividend reinvestment plans (also known as DRIPs). These plans allow investors to grow their investments through automated reinvestments of their proceeds into additional shares/ units.
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