What DRIP means
DRIP stands for dividend reinvestment plan. Instead of taking each dividend as cash, your broker uses it to buy more shares of the same fund, usually for free and in fractional amounts. More shares means a bigger next dividend, which buys even more shares. That loop is compounding.
How to read the results
The blue line is your portfolio if every dividend gets reinvested. The orange line keeps the same contributions but takes dividends as cash. The DRIP advantage compares the reinvested portfolio to the cash route's portfolio plus all the cash it collected, so it is a fair comparison.
Two growth inputs matter most. Dividend growth is how fast the fund's payout per share rises each year. Dividend growth funds like SCHD and DGRO have historically raised payouts at a solid clip. Share price growth is how fast the fund's price rises. High-yield option funds often have higher yields but little or no price growth, and sometimes price decay.
Try these scenarios
- Load SCHD, then JEPI, and compare the yearly income after 20 years.
- Set a tax rate of 15% to see the drag of holding dividend funds in a taxable account versus an IRA.
- Set price growth to 0% or below for high-yield funds that do not grow, to see a more cautious outcome.
Frequently asked questions
What is a DRIP calculator?
A DRIP calculator estimates how a portfolio grows when dividends are automatically reinvested to buy more shares, compared with taking dividends as cash.
Is it better to reinvest dividends or take the cash?
Reinvesting usually builds a bigger portfolio and bigger future income, while taking cash gives you income today. Many investors reinvest while working and switch to cash in retirement.
Are reinvested dividends still taxed?
Yes. In a taxable account, dividends are taxed in the year they are paid even if you reinvest them. Use the tax field above to model that.
What dividend growth rate should I use?
It depends on the fund. Dividend growth ETFs have historically raised payouts several percent a year, while option-income funds have no set growth pattern. Use a conservative number if unsure.