[Disclaimer: These are my own views, not financial advice. Use at your own risk.]

When I started earning dividends on my portfolio, I didn’t want that cash to sit in my account doing nothing – I wanted it to work for me. So my default setting for dividends was “reinvest in security” (this setting is often called “dividend distribution and capital gains”, or something similar).

But after I started my asset allocation and rebalancing strategy (see Finance, On Rails – Part 3: Asset Allocation and Finance, On Rails – Part 6: Rebalancing Your Portfolio: Keeping Risk and Returns in Check) I realized this convenience was fighting against me, especially for company stock – it caused my asset allocation to drift.

The answer was a counter-intuitive switch back to cash (“deposit dividends to core account”). While this removed the automatic investing feature, it allowed me to sweep the income into my existing strategy and minimize my asset allocation drift.

So if you’re regularly following your own asset allocation and rebalancing, consider updating your dividend setting to “deposit to core account”.

Easy.

Good luck!

-Gary