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We will only consider more general questions the investment cess or stocks in the portfolio or related industries.
This week's question: I have been a member of the and Cramer's guidance for many years, greatly benefiting from his help.
My question is: Should a dividend reinvestment strategy be considered as a possible compounding part of a portfolio? — Thank you, John from Illinois.
We always recommend that investors take part in dividend reinvestment plans, or DRIPs for short, as they are arguably the easiest way to realize the incredible benefit of compound interest.
(We do not reinvest dividends in the CNBC portfolio because dividends and net gain are given to charity.) DRIPs are an option that investors can choose on their brokerage platform to have the stock dividends that they receive automatically reinvested into the stock from which those funds came.
Rather than receive $1 as a cash dividend from stock XYZ, an investor who selects to have a DRIP would receive $1 of XYZ stock. DRIPs can be paid out as fractional s.
Setting up a dividend reinvestment plan would not apply to investors who rely on dividends for passive income needed to cover regular expenses.
Indeed, those who need cash near-term should also refrain from that cash in an asset as volatile as equities.
However, for most everyone else, it's a great way to passively ensure that compound interest is working to their advantage.
More active investors may prefer to get cash — not incorrectly arguing that they can take that cash and invest it whenever and wherever they see opportunity.
We prefer, however, to see the dividends reinvested because it's passive and ensures that your money is going to work in something you already — otherwise, why be invested in that stock in the first place — as opposed to having a slowly growing pile of cash that you can forget .
Defaulting to a DRIP, in our view, stands to vide more benefit for a greater number of investors.
Going the more passive route is especially beneficial for longer-term investors who may not open their accounts all that often.
After all, constant checking on your account can be detrimental, especially if you're the type of person who feels that you always need to be making a move.
To quote the late great Charlie Munger, the steady right-hand man for Warren Buffett for decades, "The big money is not in the buying or selling, but in the waiting." With that in mind, let's run some numbers and look at the benefits of re dividends.
For the 10 years ending Dec. 31, 2024, the largest S & P 500 exchange-traded fund, the SPY , had a cumulative price return, excluding dividends, of 185%.
With dividends reinvested back into the SPY where they came from as part of a DRIP, the EFT up realizing a total cumulative return of 239%. That's a big difference.
(See here for a full list of the stocks INJim Cramer's Charitable Trust.) As a r to the CNBC with Jim Cramer, you will receive a trade alert before Jim makes a trade.
Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio.
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