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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.