Ignoring Dividend Reinvestment? You’re Missing Out on the Real Magic of Compound Growth
At Curious Clan, we love uncovering the small things that quietly make a big impact — and today’s topic is exactly that.
If you’re investing through a TFSA and not reinvesting your dividends, you might be unknowingly leaving a small fortune on the table.
Let’s talk about why.
💸 First, What Are Dividends?
When you invest in certain stocks, ETFs, or mutual funds, some of them pay out dividends — basically a slice of the company’s profits, shared with you just for holding their shares.
Dividends might not feel like a lot at first — maybe $20 here, $50 there — but the real magic happens when you don’t take that money out.
Instead, you reinvest it.
🔁 What Is Dividend Reinvestment?
Dividend reinvestment is exactly what it sounds like: instead of taking the dividend as cash, you automatically use it to buy more shares of the investment that paid you.
Over time, this leads to:
- More shares = more dividends
- More dividends = more reinvestment
- More reinvestment = more growth
That’s compound growth in action — growth on top of growth.
And when it’s happening inside a TFSA, it’s all tax-free. That’s the jackpot.
📈 Here’s a Simple Example
Let’s say you invest $10,000 in a dividend-paying ETF that yields 4% annually. Without reinvesting, you’d earn:
- $400/year in dividends — nice, but flat.
Now let’s reinvest those dividends and assume your ETF grows steadily at 6% per year (including price appreciation + reinvested dividends):
- After 20 years, your investment could grow to around $32,000.
- Without reinvestment, it might only be around $22,000.
That’s a $10,000 difference, just from clicking “reinvest” instead of “withdraw.”
🧠 Why This Is Especially Powerful in a TFSA
Dividends earned inside your TFSA are completely tax-free — no income tax, no capital gains tax, nothing.
So when you reinvest them:
- You don’t lose a portion to taxes.
- Your full dividend keeps working for you.
- You grow your portfolio faster and more efficiently.
🚫 Why People Skip Reinvestment — And Why That’s a Mistake
Here’s why some people don’t reinvest:
- They like seeing the cash come in — it feels like income.
- They plan to use it for short-term spending.
- They didn’t know reinvestment was even an option.
- They think the amount is too small to matter.
But here’s the truth: small amounts grow, especially when they’re working inside a tax-free account. It’s not about $20 dividends today — it’s about $2,000/month in dividends later.
🛠 How to Start Reinvesting Dividends
If you’re investing through platforms like Wealthsimple, Questrade, or other brokers, look for the “DRIP” (Dividend Reinvestment Plan) option. Just toggle it on, and your dividends will automatically buy more units.
Or, if your platform doesn’t offer DRIP, you can do it manually:
- Collect the dividend
- Use it to buy more of the same investment when enough accumulates
- Repeat regularly
✅ Final Thoughts: Don’t Sleep on Reinvestment
Reinvesting dividends might sound boring. It’s not flashy. It’s not hyped on social media. But it’s one of the most reliable ways to build wealth over time — especially in a TFSA.
Let your dividends do the heavy lifting for you. The earlier you start, the bigger the snowball.
Curious Clan Quick Tip:
“You don’t need to invest more money. Sometimes, you just need to reinvest what you already earned.”