Reinvesting the dividends from mutual funds or using a dividend reinvestment plan for an individual stock is an investment strategy to compound the growth of the investment by buying more shares of the investment with the earned dividends. You can set up a system to track your dividends earned and reinvested and keep an up-to-date record of your cost basis in the stock or fund.
Set up a new spreadsheet in a spreadsheet program to track your reinvestment amounts. As an example, you could set up columns for the date, amount of investment, amount of reinvested dividends, price per share, number of shares purchased, current cost basis and total shares owned.
Enter your the dates and amounts of your purchases or dividend reinvestments by row in the appropriate column of the spreadsheet. For example, if you bought $1,000 worth of stock on October 1 at $10 per share, those amounts would go in columns A, B and D, using the column labels suggested above, and 100 shares would go in column E. If there was a dividend reinvestment instead of a purchase, the amount would go in column C of the spreadsheet.
Set up a math function to calculate the current cost basis of your investment. For the first line, the calculation will add the purchase and reinvestment amounts. Assuming your column titles are on the first row of the spreadsheet and you start entering your investment information on the second row, you would enter "=B2+C2" in cell F2 to calculate your basis. The calculation in cell F3 would be "=F2+B3+C3" to add the investment or reinvestment amount entered in row three to the cost basis.
Enter the dollar and share amount information on a new line each time you buy more shares or a dividend is reinvested. The cost basis column calculation can be filled in automatically by pulling the calculation down the column. Highlight the cell with the formula, click and hold on the little square which appears in the bottom corner and pull the square down the column. The formula will be filled in for each cell, which becomes highlighted with the correct cell addresses for the row. Your cost basis will be updated each time you add a row.
Make your spreadsheet more useable and attractive using some spreadsheet functions. Make the column headings bold, change the cell style to currency for the dollar amounts and adjust the column widths. Keeping track of your cost basis reduces your taxable gain if you sell the investment.
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