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Dividend reinvestment unlocks the wealth generating potential of equities
Thursday 06 Apr 2017 Author: Tom Sieber

The old Chinese curse ‘may you live in interesting times’ has rarely felt more apt than it does in 2017. Amid all the noise about Trump, Brexit, European elections and the rest it can be useful to take a step back and appreciate just what the humble share can deliver in the long-term.

AJ Bell’s latest edition of its quarterly Dividend Dashboard spells out the kind of returns you can achieve through reinvesting the dividends from shares.

The report assumes the FTSE All-Share continues to generate the compound annual growth rate since inception in the early 1960s of 6.8% a year and pays the same annual dividend of 3.8%.

On this basis if you had invested last year’s ISA allowance of £15,240, and subtracted 1% a year for platform administration and dealing fees, you would be sitting on £231,577 after 30 years with dividends reinvested. This level of return dwarves those offered by cash on deposit.

Spirit of adventure

In our main feature this week we make the case for including some high conviction stocks in your portfolio.

It is not sensible to invest in individual shares with money you cannot afford to lose and nor should you take unnecessary risks. However, there is a case to be made for retaining at least some spirit of adventure in your investing.

After all, the stock market’s origins lay in backing the ventures of 16th and 17th century merchants targeting distant and exotic markets.

Being part-owners of the latest names looking to the public markets to back their plans for growth and wealth generation can be exciting and fun as well as potentially boosting the returns from your hard-earned cash. (TS)

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