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Question about compounding returns on stocks.

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    #32
    The J Stands for Jay
    Registered Users Posts: 5,669 ✭✭✭The J Stands for Jay


    PhilOssophy wrote: »
    I think there is a Revenue rule that says you have to cash out every 8 years? Which I think (but do not know) means the gain made in the 8 years is subject to CGT.
    Don't take my word though, it is something along those lines I think. Some others will know better I reckon!

    Completely wrong. For ETFs you need to pay tax every 8 years.


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    #33
    The J Stands for Jay
    Registered Users Posts: 5,669 ✭✭✭The J Stands for Jay


    JackieChang wrote: »
    There's no compounding in my version or his version?

    Many website mention compounding returns on stocks. For example:

    Compounding is based on the idea that, when you earn interest and generate earnings on your investments, the next year you earn interest on your original investment, plus the interest from the first year. And on and on it goes.

    The longer you invest, the more time there is for compound interest to take effect.

    From: https://www.investments.halifax.co.uk/boost-your-skills/develop-your-skills/buy-and-hold

    Another article on compounding:

    "But look a little deeper at the effect of selling versus holding, and you see that the effect of holding stocks and not selling is to vastly increase the portfolio size over time."

    More:

    "If you keep your money invested for a long enough time frame, it becomes possible to not only make gains on the initial investment, but also on previously made returns. The compound interest creates a snowball effect; the longer the money is left invested, the more your initial investment will increase year after year."

    And a million other websites etc etc

    These million websites are all refering to reinvesting dividends.


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    #34
    The J Stands for Jay
    Registered Users Posts: 5,669 ✭✭✭The J Stands for Jay


    JackieChang wrote: »
    I sell it in 20 years and then get my return. What I'm getting at is long term investing. Why do I have to sell and buy back constantly to see compounding growth? What a pain in the arse.

    Why can't I hold for 20 or 30 years and grow my investment?

    If you sell and buyback every year, you'll be killing yourself with stamp duty, CGT and broker fees


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    #35
    hottipper
    Registered Users Posts: 243 ✭✭hottipper


    deleted


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    #36
    TheFin
    Registered Users Posts: 46 ✭TheFin


    Compounding is reinvesting dividends - There are two ways you can reinvest dividends: either by taking the cash and purchasing additional shares through your broker or by using an automatic dividend reinvestment plan (DRIP).


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    #37
    JackieChang
    Registered Users Posts: 1,494 ✭✭✭JackieChang


    TheFin wrote: »
    Compounding is reinvesting dividends - There are two ways you can reinvest dividends: either by taking the cash and purchasing additional shares through your broker or by using an automatic dividend reinvestment plan (DRIP).

    I already said let's forget dividends exist.

    I'm talking about exponential growth via share price increase only.


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    #38
    TheFin
    Registered Users Posts: 46 ✭TheFin


    JackieChang wrote: »
    I already said let's forget dividends exist.

    I'm talking about exponential growth via share price increase only.

    Ok. The advice you received regarding compounding is incorrect. Compounding only relates to the power of dividend reinvestment to significantly increase the value of your investment in a particular stock


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    #39
    Jim2007
    Moderators, Business & Finance Moderators Posts: 10,035 Mod ✭✭✭✭Jim2007


    TheFin wrote: »
    Ok. The advice you received regarding compounding is incorrect. Compounding only relates to the power of dividend reinvestment to significantly increase the value of your investment in a particular stock

    Reinvesting dividends is not a very tax efficient way to go, it would be better to invest in a growth style company, where there are opportunities for company to reinvest profits, rathe than you paying income and time reinvesting the dividend.


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