I've read Einsteins quote stating "The most powerful force in the universe is compound interest." However, everywhere I read this is basically only possible with dividend paying stocks and then applying a dividend reinvestment plan.

Is there a re-investing strategy like this for non-dividend paying mutual funds (or even non-dividend paying stock)? I figured that the only way would be to sell all your funds and then buy x+1 funds again, but this would cause a big loss because of transaction costs from the broker.


I think you are overcomplicating things.

In the case of a stock / fund which pays no dividends / interest, your investment automatically 'reinvests' any growth directly into the value of a stock.

Assume you buy $10k of shares in a company which pays no dividends.

Now assume that for the next ten years, each year the company grows in value by 10%. First, your shares are worth 11k. Then 12.1k. Then 13.31k... In 10 years, your shares would be worth 25.9k! This is equal to 159% growth over 10 years - an average of 15.9% growth per year, even though growth was only 10% per year. This is the power of compounding. If you held the same investment for 30 years, it would be worth 175k, which is growth of 1,600% - an average of 164% per year!

If you had a stock that paid everything as dividends, and then you rebought shares [assuming no transaction fees], then this compounding impact would theoretically be exactly the same.

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