Hold Your Nose and Invest
Earlier this week, I re-invested a chunk of recently paid dividends. For those that missed it, I’ve previously discussed why we don’t automatically reinvest dividends in our taxable investment account. Instead, we let dividends accrue and then manually reinvest in one holding on a quarterly basis.
As for why, the short version is that manual reinvestment helps us simplify our record-keeping by minimizing the number of tax lots that we generate and it also helps reduce the need to rebalance our portfolio. Another nice side effect is that we’re less likely to trigger a wash sale when harvesting losses.
When the time comes to reinvest, I simply look at our holdings and determine where things stand relative to our desired asset allocation. I then buy more of whatever we’re low on. Currently, we’re below our target on international equities thanks, in large part, to the poor recent performance of international stocks.
In other words, once a quarter I hold my nose and invest in whatever stinks. In good times, this means buying whatever has gone up the least. In bad times, it means buying whatever has been beaten down the most.
Either way, this method has served us well.
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Modified on July 26th, 2012 - 5 Comments
Filed under: Saving & Investing
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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5 Responses to “Hold Your Nose and Invest”
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July 20th, 2012 at 6:20 pm
I like this method! The good thing is that you’re buying low and hopefully eventually when you sell they’ve gone back up
July 22nd, 2012 at 4:46 pm
That’s a good way to rebalance: just direct future purchases in whatever fund is the furthest off the target asset allocation in your retirement plan.
It enforces the “buy-low” strategy, where you are always directing purchases into the biggest loser. It also avoids “taxable events” (in a taxable account) because your portfolio stays balanced without ever selling shares.
July 24th, 2012 at 10:11 am
I have a related question for you. Like you, I go for dividend paying stocks. Recently I heard about mREITS, REITs deriving their revenue from mortgage payments. These pay very high dividends (over 10%) and they appear to be on the up and up.
Here’s the question: do those dividends include repayment of principal as well as interest? Does anybody know?
Thanks in advance…
July 25th, 2012 at 4:29 pm
Do you get charged a fee? Is it a large percentage of your purchase? I only ask since I am way behind you in terms of accumulating assets my dividend payments from individual stocks aren’t even enough to pay the commission lol.
I used to follow your technique until I realized I was getting killed with fees.
July 26th, 2012 at 8:21 pm
Evan: Nope, no fees. We use Vanguard index funds for the most part.