There was a post last week on the New York Times Bucks Blog about whether or not people should automatically reinvest their dividends. It is pretty timely. I first saw a link to it the day before the Fed announced Operation Twist and the market went down 3% in one day.
The argument is that reinvesting dividends is the reason that dividend investing can be so successful. By doing it automatically, you do not have to engage in market timing. If you reinvest when a stock is going down, it can lower your cost basis.
I was automatically reinvesting, but now I am having my dividends go to cash. Reinvesting lower can lower your cost basis, but you could also throw money down a hole. Bank Of America paid a good dividend for a while, but it cut its dividend and kept going down.
Dividend investors are not as concerned about price as are investors who invest for capital gains. But you could still lose money. For the time being, I plan on having my dividends go to cash for a while. I do not think that we will have a depression or a deep recession, but I do think that stocks could go lower for a while. I think that going to cash for now is the way to go.
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