I Didn’t Add Any Money to My Robinhood Account in the Past 6 Months. Here’s How I Was Able to Buy More Stocks

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

You don’t need to add money to your brokerage account to gain buying power. There may be another way. Read on to learn more. [[{“value”:”

The money I have earmarked for long-term goals sits in a combination of retirement and brokerage accounts. But years ago, I opened a Robinhood account for what I call “fun investing.”

Rest assured, it’s a term I made up. But in a nutshell, my investments in my Robinhood account aren’t for long-term goals. Rather, they’re there to (ideally) make me money that I’m free to tap when I want to (keeping in mind that I’m careful about capital gains taxes).

Because of this, my Robinhood account isn’t one that I add money to very often. I’m more focused on pumping money into my kids’ college accounts, my retirement plan, and my long-term brokerage account.

As such, I actually have not added a dollar to my Robinhood account in six months. But I’ve been able to buy more stocks nonetheless. Here’s how.

When you put your dividend income to work

Many of the stocks in my Robinhood account pay dividends. Dividends are a company’s way of sharing the wealth with shareholders. Companies do not have to pay dividends, so some don’t. And even companies that start off paying them can halt that practice as they please.

But as an investor, dividends are something you might look at as a nice little bonus. And if you’re savvy in managing your dividends, they could help you grow a lot of wealth over time.

See, when you collect dividend income, you have a choice. You can take the money and spend it as you please, or you can reinvest your dividends and use that money to buy more shares of different stocks. I go the latter route in my Robinhood account, which explains how I was able to buy more stocks without adding any money.

One nice Robinhood feature is that you can set up a dividend reinvestment plan so that when that income hits your account, it’ll automatically be used to buy more shares of the companies that issued your dividends in the first place. And since Robinhood allows you to buy fractional shares, you don’t have to worry about your dividend payments not being large enough to cover full shares.

Let’s say you get a $12 dividend payment and want to use it to buy into a company whose share price is $48. With fractional investing, which Robinhood and many other brokerages allow for, you can, in this example, buy one-fourth of a share of the stock you want.

Don’t just chase dividends

Holding dividend stocks gives you an opportunity to take those payments and use them to grow your portfolio and wealth. But one thing you definitely do not want to do is buy stocks just because their dividends are generous.

As mentioned above, companies aren’t obligated to maintain their dividends. Also, a generous dividend isn’t necessarily indicative of a given company’s financial health. It simply means the company is choosing to pay a larger sum to its investors. It’s sort of like if you have an uncle who’s loaded with debt, but every time he comes to visit, he brings generous gifts. His finances might be a mess, but on the outside, you wouldn’t know it.

That’s why you can’t use dividends as a benchmark for buying shares of a given company. Instead, you need to look into that company’s finances to see how well (or not) it’s doing. But if you decide to invest in a company that happens to pay dividends, then you should really embrace the opportunity to use that money to invest even more.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

“}]] Read More