By late 2021, I stumbled upon an intriguing household inventory ticker yielding impressive, high-dividend returns of 10% annually. I decided to speculate on investing some of my cash.
I started investing in those shares at the beginning of 2022. Regrettably, I overlooked the ominous signs of an impending bear market in the stock market. As the downturn became increasingly apparent, I had already committed thousands of dollars to investments. Thankfully, whereas the NASDAQ and S&P 500 had been down over 20%, these investments had been down about 10% to fifteen%.
Despite feeling frustrated with my investment choices, I chose to redirect the dividend income to mitigate the losses through strategic dollar-cost averaging. When reinvesting dividends, each subsequent investment typically has a lower initial value compared to the original funding. Next month, the dividend reinvestment will earn the subsequent dividend’s cost base, as I ended up purchasing more shares per dollar invested compared to my initial outlay. After a two-year period of decline, the initial funding loss finally began to recover as a bull market emerged in late 2022. Meanwhile, the value of the dividend funds had been steadily increasing.
In early 2023, I harbored significant trepidation regarding my tax obligations. Assuming that reinvesting dividend funds meant there was no additional capital available to cover tax liabilities on those earnings. After filing my taxes, I noticed that my tax liability remained unchanged, leading me to wonder what was preventing any increase. The 1099-DIV type labeled…
