A DRIP automatically uses dividends to purchase additional shares, creating a compounding effect where more shares earn more dividends, which buy even more shares.
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Pro Tip
DRIP works best in tax-sheltered accounts (Roth IRA, ISA) where dividends are not taxed annually.
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Did You Know?
Dividend reinvestment has contributed roughly 40% of the S&P 500’s total return over the past century.
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