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LSDefine
Simple English definitions for legal terms
reinvestment
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A quick definition of reinvestment:
Reinvestment: Reinvestment is when you take the money you earned from an investment, like interest or dividends, and put it back into the same investment to make it grow even more. It's like planting a seed and using the fruit it produces to plant more seeds and grow a bigger tree.
A more thorough explanation:
Reinvestment refers to two different things:
- The addition of interest earned on a monetary investment to the principal sum.
- A second, additional, or repeated investment; especially, the application of dividends or other distributions toward the purchase of additional shares (such as a stock or a mutual fund).
1. Let's say you invest $1,000 in a savings account that earns 5% interest per year. After one year, you will have earned $50 in interest. If you choose to reinvest that interest, your new principal sum will be $1,050, and you will earn interest on that amount in the following year.
2. Another example of reinvestment is when you own shares of a company's stock. If that company pays out dividends to its shareholders, you can choose to reinvest those dividends by using them to buy more shares of the company's stock. This can help your investment grow over time.
These examples illustrate how reinvestment can help increase the amount of money you earn on your investments. By reinvesting interest or dividends, you can earn more money on your original investment, which can help you reach your financial goals faster.