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I started investing in the stock market last year. I've read tons of information and tried different products.

My knowledge about compound interest is, when you invest in one stock, get 5% return, you use this 5% to buy more stocks and then make interest based on your new stack of stocks.

There are ETFs and robo advisers which will automatically do this for you.

But, I have my stocks on my broker (around 7 companies at the moment). I have currently a 8% gain.

How do I sell/buy to "compound" my interest?

Do i sell one company completely and buy a new one? Do I sell 8% worth of stocks and buy more of one or more companies?

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  • Question looks different in the above question, but the resulting answer is basically the same.
    – Grade 'Eh' Bacon
    Jan 8, 2018 at 17:32
  • If the stocks do not pay a dividend, you have to sell them to realize any gain.
    – Rocky
    Jan 8, 2018 at 19:15
  • does your broker not allow you to reinvest dividends?
    – Neuromancer
    Jan 9, 2018 at 13:04

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If the 8% gain is through capital gains (the prices have moved up 8% from when you bought them), then you don't have to do anything. By just keeping them they will keep compounding if the price keeps rising.

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Stocks don't pay interest. Some do pay dividends. You can use the dividends to purchase more shares of that stock, or you can use it to buy shares of a different company.

When people talk about compound interest they are talking about instruments that pay a guaranteed amount or a guaranteed percentage periodically. This can include bank accounts, CD's and government bonds. Now to be accurate banks only guarantee their rates for a specific time period.

Stocks have no such guarantee. The Board of directors votes on how much if any dividend there will be. They could have paid 5% last year but decide to only pay 1% this year. In addition the price of a share of stock can decrease. Thus the value of your investment can decrease.

While it is true that people talk about the average investment on stock exchange X goes up by y% per year over the long term. There is no guarantee that the average will be y% this year, and certainly there is guarantee that the stock you picked will even be above average this year.

Now regarding your shares. You can sell some of them and make a profit. Though there are taxes and expenses that have to be considered. Then you have to decide what to buy next.

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    I would also note that theoretically earnings that are not distributed as dividends are "compounded" by the company through retaining earnings and growing the company
    – D Stanley
    Jan 8, 2018 at 18:33

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