Power of Compounding Dividends

When you reinvest dividends, you put more money to work.

Over time, dividend reinvestment may make a significant difference in the value of your nest egg.

Take a look at the results of two hypothetical couples, the Coopers and the Jones (Note: The names have been changed to protect the identity of the Coopers.)

The Coopers

The Coopers Took Their Dividends in Cash The Coopers invested $10,000 in Equity and Income Fund on September 30, 1979. (we will not mention the actual fund here.)

Unaware of the power of compounded dividends, the couple withdrew their dividends in cash each year to buy new appliances or holiday gifts.

Twenty-five years later, on September 30, 2004, the Coopers’ original investment was worth $61,158, and they had taken a total of $25,115 in cash dividends.

The Coopers treated their long-term investment like a short-term cash account—and short-changed themselves in the process. Meanwhile, the second couple, below, tapped Into the opportunity of Compounding Dividends

The Jones

The Jones began along the same path, also investing $10,000 in the fund on September 30, 1979.

But they didn’t nickel-and-dime their dividends away.

They know the potential benefits of compounding, and the Jones opted to reinvest their dividends.

By September 30, 2004, their investment had grown to $196,923, including $56,644 in dividends.

See the conclusion here.