It’s been a hot minute since I’ve rapped at ya. What I mean is, I’ve been busy and haven’t had any time for writing on the blog. Hopefully that’ll change soon, but in the meantime I didn’t want you to think I’d forgotten about you.
Today let’s think for a minute about what I’ll call “Flipping the Switch”. Let’s say that you’ve been chugging along, dutifully investing in your dividend paying stocks for years and now you find yourself at a point where you have a nice stable portfolio of income producing assets. The only problem: you have yet to collect any income from these assets. If you’re anything like me, you’ve been trying to let the assets build up over time. In my portfolio, I currently have all of my dividend payers set to automatically reinvest the dividends each time they pay out. That means if we take my January payments and extrapolate for an entire year, at the end of the year I will have $342.36 more in income producing assets, but I won’t have $342.36 more cash. So when do we flip the switch from reinvesting dividends to collecting that sweet, cold, hard cash?
There’s no right answer.
For me, in my situation, I don’t necessarily need the extra $30 or so each month that I am currently earning. I can better deploy that potential capital by turning it into future cash than I could by taking the cash now and doing something with it. There are a whole bunch of considerations here. Taxes, inflation, future income, etc. In my case, I’m content to let my dividends earn me more dividends. As we’ve talked about before, by reinvesting dividends I am doing a lot to ensure that I’ll start to see some level of exponential returns as time goes by. Right now, I want to let those shares grow as much as possible and then in the future I’ll flip over to receiving cash instead of extra shares. The goal is that when I start taking cash, I’ll receive as much cash as possible. And hopefully dividends will still be taxed at a pretty low rate.
Like I said, there are lots of different considerations and things to think about around this topic. I could probably write 10 posts on this (and maybe I will, if I get back to writing regularly). But for now, I’m letting my shares grow until I need or want the cash.