What is dividend reinvestment (DRIP) and should I turn it on?

DRIP – a dividend reinvestment plan – automatically uses the dividends your funds or stocks pay to buy more shares instead of depositing the cash in your account. For long-term investors who don't need the income yet, turning it on is usually smart: it keeps your money compounding, buys shares in fractional amounts at whatever the current price is, and removes the temptation to let cash sit idle. Most brokerages let you enable it with a single setting per holding or account-wide. The main exceptions are if you need the dividends to live on – many retirees take them as cash – or if you specifically want the cash to rebalance into something else. One tax note: in a taxable account, reinvested dividends are still taxable in the year they're paid, and each reinvestment creates a new cost-basis lot to track. In an IRA or 401(k), there's no such complication.