What is 'Reinvestment'
Reinvestment is using dividends, interest and capital gains earned in an investment or mutual fund to purchase additional shares or units, rather than receiving the distributions in cash.
1. In terms of stocks, it is the reinvestment of dividends to purchase additional shares.
2. In terms of mutual funds, it is the reinvestment of distributions and dividends to purchase additional units of that fund.
3. In terms of tax gain/loss harvesting, it is the realization of losses to offset a capital gains liability.
BREAKING DOWN 'Reinvestment'
This is definitely a great way to significantly increase the value of a stock or mutual fund. In the case of stocks, investors can use dividends to buy additional shares instead of receiving payments in cash.