Reinvesting can grow the income-producing base, while spending supports today’s needs. Compare both the remaining assets and the cash paid out.
Use a deliberately simple investment
Start with RM10,000, a constant unit price and a 4% net annual cash yield paid at each year-end for 20 years. There are no new deposits, fees beyond those already reflected in the net yield, or taxes beyond that net assumption. Fractional units are allowed and reinvestment is immediate. Real securities do not maintain a guaranteed price and yield; the setup isolates the reinvestment decision.
Spending all dividends provides cash now
Taking the full RM400 dividend each year leaves the original RM10,000 portfolio under the fixed-price assumption. Twenty years of cash distributions total RM8,000. If you spend that money, it is no longer part of your ending wealth. RM18,000 is therefore portfolio plus cumulative distributions, not a bank balance you necessarily still have at year 20.
Reinvesting all dividends compounds the base
Reinvesting at every year-end produces 10,000 × 1.04^20 = RM21,911.23 at year 20, with no dividends taken out for spending. The difference from the spending path comes from future dividends on reinvested units. It is not extra free income that can also be counted outside the portfolio. Once a distribution has bought units, its value is already represented in those units.
| Policy | Ending portfolio | Cumulative cash taken out |
|---|---|---|
| Spend all | RM10,000.00 | RM8,000.00 |
| Reinvest half | RM14,859.47 | RM4,859.47 |
| Reinvest all | RM21,911.23 | RM0.00 |
A half-and-half policy is a third path
Reinvest half the 4% dividend and take half as cash. The portfolio grows at 2% in this simplified model to RM14,859.47. Cash taken out over the period totals RM4,859.47, giving RM19,718.95 of ending portfolio plus cumulative payouts. The payouts increase as the base grows. The table adds unspent-or-spent historical cash without assigning it further returns or adjusting for inflation.
Choose a rule that matches your cash needs
During accumulation, reinvestment may fit a long-term goal if the investment still belongs in the portfolio. During retirement, part of the cash may be needed for spending. Review concentration before automatically buying more of the same holding, and check dealing costs for small distributions. A written allocation rule is easier to follow than changing policy after each dividend announcement or market headline.
Put it into practice
For the all-reinvest path, use RM10,000, no monthly deposits, 4% effective annual return and zero separate fee over 20 years. The other paths require the explicit cash accounting described here.
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