This is the week that I turned off all the DRIP (Dividend Reinvestment Plan) settings on my SIPP (Self Invested Personal Pension) account.
All the investing primers will talk about compounding interest over the years being a key factor in maximising your returns. To increase the returns add dividend re-investment into that equation and it looks even better. However the automatic dividend reinvestment offered on your trading platform may not be the best option to do that. If like me you do not have large holdings of any particular share.
The way the DRIP feature works is it will take the dividend received for a share then attempt to buy shares with the amount, then charge a £1 fee. None of my dividend paying holdings return a dividend of more than £50, so whilst £1 seems a small amount to pay to trade, I am mostly breaking my trading rule to not spend more than 2% on a trade.
This doesn’t mean that I am not going to reinvest the dividend. I will allow dividend payments to accumulate, then add that to the regular pension contributions. The dividends will then be invested alongside the normal regular investments. This is going to reduce the costs of running the SIPP by about £35 a year (it all helps). This is also going to reduce the amount of effort involved in tracking the trades.