Dividend Reinvestment (DRIP)
Definition
Automatically using dividend payments to buy more shares instead of taking cash. If a fund pays a $100 dividend, that $100 buys more shares at current price. Over decades, this compounds powerfully because you're buying more shares regularly.
Why It Matters
Dividend reinvestment is a secret weapon for long-term wealth. You're automatically dollar-cost-averaging into your investments. Without thinking about it, your share count grows and compound growth accelerates.
Example
Own 100 shares of a dividend fund yielding 3% annually. $300 dividend buys 3 more shares. Next year you own 103 shares earning $309 in dividends, buying 3+ more shares. After 30 years, automatic reinvestment turned 100 shares into 240+ shares.