Reinvestment

1. Investing the dividends from a stock or distributions from a mutual fund to buy more shares or units in the stock or mutual fund. This may be an excellent way to accumulate a large position in a stock or fund. In terms of stocks, some large companies offer programs that will sell investors who reinvest dividends into the stock at a discount to market price. See “Dividend Reinvestment Plan” for more.

2.The investment of earnings into expanding operations by a company. Reinvestment is critical for a company’s growth as most of the time  (but not always), in order to expand production and supply, reinvestment in plant and equipment are necessary. Reinvestment into high-profit margin, high-growth sections of a business is paves the way for further growth in earnings. However, sometimes when all the companies in an industry reinvest their earnings and expand aggressively, everyone may be worse off due to oversupply.