Reinvest is an option especially for distributions from mutual funds. The decision to reinvest distributions instructs the mutual fund to use the funds to purchase additional shares of the mutual fund at the then market price rather than making the distribution in cash.
Reinvesting allows an investor to accumulate shares over time, effectively dollar cost averaging in the process. For small investors it also avoids frequent trips to the bank to deposit small checks. An alternative is to hold the shares in a brokerage account and have distributions paid into a money market fund for investment at some future date.
Many stocks offer dividend reinvestment programs that allow reinvestment in the same common stock. They are especially useful for small investors accumulating shares because often commissions are apportioned making them only pennies per share. Most plans allow purchase of fractional shares. To participate in the plan it is usually necessary to hold the stock certificate of the company to begin. Shares held in a brokerage account in street name are not usually elegible, though some brokerage firms do offer dividend reinvestment programs. Most dividend reinvestment programs will allow additional contributions for the purchase of shares. Many will also allow you to sell your shares, but because timing and price of the sale is uncertain, many prefer to order out the shares as certificates and then sell them through a brokerage account.
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