Gyroscopic Investing

I realize most leave their dividends to cash, esp understandable in taxable accounts.

If on is still in the accumulation phase in tax sheltered accounts, does it matter if the dividends are re-invested?

Having recently started a CDN PP with 4 ETFs (XIC, ZFS, ZFL and IGT), I had not realized that the accounts were still being dripped by CIBC Investor's Edge.

Just wanting to know how this would effect the portfolio in the long run.

bluedog wrote: I realize most leave their dividends to cash, esp understandable in taxable accounts.

If on is still in the accumulation phase in tax sheltered accounts, does it matter if the dividends are re-invested?

Having recently started a CDN PP with 4 ETFs (XIC, ZFS, ZFL and IGT), I had not realized that the accounts were still being dripped by CIBC Investor's Edge.

Just wanting to know how this would effect the portfolio in the long run.

I like reinvesting dividends.  Craig likes pushing them all to cash.

I don't think it makes a big difference unless you are living off the income from the portfolio, in which case I think it makes sense to divert all portfolio income into cash.

Don't over think the PP.  It's fairly common from what I can tell, but not necessary.  Either way, I seriously doubt you'd feel any difference whatsoever 20 years from now, tax issue aside (which apparently isn't an issue for you).

Like many folks out there I'm not reinvesting dividends in my taxable to avoid micro-pucrhases.

As to IRAs, there is no one "golden" rule. I put the dividends to cash except the following 2 situations:
- buying a particular security involves a commission (all VP stocks, some ETFs)
- commission-free mutual funds and ETFs that I use for cash accumulation or as a temporary holder (PRPFX,FGMNX,AGG)

I reinvest dividends always except for when it is not allowed (all my preferreds).  This is true of both taxable accounts or roth IRA's.  I do this for 3 reasons:
1.  Money markets (especially at brokerages) pay so little that I would rather have as small an amount as possible in them.
2.  If I didn't think any of my dividend paying investments wasn't better than a money market, I would sell it, and buy something else.
3.  When I compare investments, I consider the results with dividends reinvested to have a level playing field.  I then reinvest dividends to compare with expectations.
Norm

ngcpa wrote: I reinvest dividends always except for when it is not allowed (all my preferreds).  This is true of both taxable accounts or roth IRA's.  I do this for 3 reasons:
1.  Money markets (especially at brokerages) pay so little that I would rather have as small an amount as possible in them.
2.  If I didn't think any of my dividend paying investments wasn't better than a money market, I would sell it, and buy something else.
3.  When I compare investments, I consider the results with dividends reinvested to have a level playing field.  I then reinvest dividends to compare with expectations.
Norm

How does tax-time work for you?

I have heard that doing taxes on a dividend re-invested account is a minor nightmare. I don't really have experience with this because I don't auto-reinvest.

ngcpa wrote: I reinvest dividends always except for when it is not allowed (all my preferreds).  This is true of both taxable accounts or roth IRA's.  I do this for 3 reasons:
1.  Money markets (especially at brokerages) pay so little that I would rather have as small an amount as possible in them.

I agree with your 1st point and I just realized I forgot to mention that I do invest the dividend cash, just not automatically to the same position. Usually I wait until I get a at least $250 (minimum additional investment for mutual funds in Fidelity) and add to PRPFX. Or I may combine cash with new contributions and invest to the lagging PP asset.

ngcpa wrote: 3.  When I compare investments, I consider the results with dividends reinvested to have a level playing field.  I then reinvest dividends to compare with expectations.

Absolutely - I think this is the only way to accurately measure performance. The only difference in "accounting" is I add a line in the spreadsheet with a # of shares and purchase price for reinvested dividends and a flat $ amount for non-reinvested dividends.

In taxable, I avoid the "minor nightmare" mentioned by melvey by letting dividends pay cash. I have a lot of individual stocks in there and the money adds up quickly. After a few months, I can make a new purchase or pay a bill.

In my 401(k), I think my holdings were reinvesting the dividends by default. I decided to let it stay that way because I don't have a lot of money in there yet. If it paid to cash, I'd have to wait forever to buy something new. (I don't have a fund in there where I could just buy $300 worth).
So, it's pleasing to watch something pay dividends to itself and compound like crazy.

Still, the 401(k) is mostly directly held 30-YR treasuries, so I'm not sure what to do with the cash from those. They are laying fallow in the money market right now.

How does tax-time work for you?

I have heard that doing taxes on a dividend re-invested account is a minor nightmare. I don't really have experience with this because I don't auto-reinvest.

Not a big problem.  Especially if you don't sell partial positions.  Also the majority of my investments are in a Roth.
Norm

I let my dividends reinvest in both taxable and non-taxable accounts.  I'm not really selling stocks because I'm in accumulation phase and I just buy lagging assets.  I suppose when I get to drawdown phase I might let them go to cash and live off the income.

Thanks everyone for all your comments and advice.

I'll just keep it simple and let the dividends drip until we need to withdraw from the portfolio.

Eventually, I would like to trade the long and short term bond ETFs for individual CDN bonds, but I do not feel I'm educated enough to know how to do this right now.

In Canada one is limited to buying $10,000 face value bonds at a time.
2041 is the longest bond listed at CIBC's Investors Edge.
I will have to call and see if the 2045 is available.

Also, I'm not sure how to ladder the cash portion w/short term treasuries.
How much of the cash portion, does one actually keep in real cash, not STT?

Once one has bought the individual bonds, do you keep a  small portion in the short and long term bond ETFs for rebalancing or just use the interest from them in your cash account?

I'm having a hard time understanding the bonds and that's why I'm stuck in the bond ETFs.

Any advice would be most appreciated.

bluedog wrote: Thanks everyone for all your comments and advice.

I'll just keep it simple and let the dividends drip until we need to withdraw from the portfolio.

Eventually, I would like to trade the long and short term bond ETFs for individual CDN bonds, but I do not feel I'm educated enough to know how to do this right now.

In Canada one is limited to buying $10,000 face value bonds at a time.
2041 is the longest bond listed at CIBC's Investors Edge.
I will have to call and see if the 2045 is available.

Also, I'm not sure how to ladder the cash portion w/short term treasuries.
How much of the cash portion, does one actually keep in real cash, not STT?

Once one has bought the individual bonds, do you keep a  small portion in the short and long term bond ETFs for rebalancing or just use the interest from them in your cash account?

I'm having a hard time understanding the bonds and that's why I'm stuck in the bond ETFs.

Any advice would be most appreciated.

The CIBC search might not be showing the 2045 because you're looking at only 30 year bonds (iTrade does the same thing), so you'll have to search for all federal bonds and then scroll all the way to the last page.

The cash ladder depends on how much cash you have...you could simply buy a one year STT and then repurchase a new STT every year once the old one matures.  Or if you have more cash then extend the ladder out a bit more, so you'd buy a one year and a two year STT, after a year you would simply buy a new two year STT.  Each year when you purchase a new STT you can adjust how much money you put into the new STT which can act as a mini rebalancing point.

In my mind rebalancing is a tricky thing and requires a certain degree of art.  I personally have my PermPort spread out over my RRSP, TFSA, two taxable account, and two different savings accounts, which makes things a little awkward.  So what i did was sit down with a pen and paper (or Excel) and just lay everything out -- eventually things started to fit together and make sense.