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Dividend Reinvestment Plan (DRIP)

A DRIP automatically uses your cash dividends to buy more shares of the same investment.

Why this matters

DRIP can help you stay consistent and compound over time without manually placing small reinvestment orders.

Simple example

Your ETF pays a $30 dividend. With DRIP enabled, that $30 is used to buy additional ETF shares instead of staying in cash.

Common mistakes

  • Assuming DRIP is always free; some brokers may handle partial shares differently.
  • Ignoring tax impact in taxable accounts.
  • Forgetting to review whether the underlying investment still fits your plan.

Related terms

Learn and practice on this site

Next step

Open next step: Test DRIP on vs off to compare long-term outcomes

Frequently Asked Questions

What does Dividend Reinvestment Plan (DRIP) mean?

A DRIP automatically uses your cash dividends to buy more shares of the same investment.

Why does Dividend Reinvestment Plan (DRIP) matter?

DRIP can help you stay consistent and compound over time without manually placing small reinvestment orders.

What is a simple example of Dividend Reinvestment Plan (DRIP)?

Your ETF pays a $30 dividend. With DRIP enabled, that $30 is used to buy additional ETF shares instead of staying in cash.

What is a common mistake with Dividend Reinvestment Plan (DRIP)?

Common mistakes include: Assuming DRIP is always free; some brokers may handle partial shares differently. Ignoring tax impact in taxable accounts. Forgetting to review whether the underlying investment still fits your plan.