Section I - Lesson 4F
Financial Plan - Automatic Reinvestment
The final basic step to your financial plan will be to set things up in your two investment accounts for automatic reinvestment of all dividends and capital gains that might be generated by your mutual funds.
You'll presumably want to do this because you're not looking to take income from your investments at this stage of your life. You already have income from your job. You're looking to make your money grow as fast as possible, and the way to do this is to reinvest this type of income.
With your regular money account you’ll want to instruct your mutual fund company that you want to reinvest all dividends and capital gains distributions back into additional shares of the fund, instead of having anything paid out to you. The fund will take the money which otherwise would have been distributed to you, and use it to purchase additional shares for your account. This will give you maximum benefit from the power of compound returns that will manifest over the years.
With your retirement account, which we are assuming is a company sponsored 401k plan, this reinvestment of dividends and capital gains back into your account is presumed and automatic. There are no special instructions that you’ll need to give to your benefits coordinator to make this happen.
If your retirement account is a self-directed IRA, or you have a rollover IRA, you can do the same thing that you'll do with your regular money account. You can have the mutual fund company that holds your IRA reinvest all dividends and capital gains back into additional shares of the fund.
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