I use Euro as my account currency, but i only invest in US stocks, will currency rate affect my long term return?
I understand the principles of compound intrest re-investing. But on Trading 212 Invest platform, lets say ive got a investment for 10 years that i do not sell. How will that add more money to the investment? Do i need to when ever being in a large ammount of profit, sell some of my shares, get the profit from that and re-invest the whole ammount into that stock again?
Very little unless one currency completely collapses.
Re-investing dividends, adding more funds. If you sell just to re-buy the same you’re not doing anything other than getting taxed and therefore losing money.
Edit: if you ever do make a huge amount of profit, it can be worth pulling out your original funds to invest in another instrument while leaving the profits in to accumulate and grow, that way you’ve got something for essentially nothing.
Edit edit: the above may or may not be the best. It depends on your strategy. I don’t give financial advice. I just talk sensible.
Thanks for the quick reply. I get you. So it is just holding on to the stocks, adding more funds, re-investing dividends and then just letting that baby grow like a snow ball down a hill.
Exactly. Some don’t give dividends and you gain money by the price appreciation. Those are the ones you tend to sell once you need money. Dividend ones you don’t need to sell as they generate cashflow.
Do you know guys if the SP500 etf pay dividends. I want to put money into that get dividends back and reinvent that money so i can make the compound interest.
Some do and some don’t. If you’re after dividends you need to look for the word distributing in its name. If it has accumulation or accumulating it automatically reinvests the dividend into itself to grow the value of the fund.
Thanks! Also i asked the 212 team and they said they don’t pay interest so let me get this straight bc im a little bit confused. We get compound interest by just simply reinventing that dividends back?
The compounding factor isn’t related to interests;
Getting interests to reinvest is compounding;
Getting dividends to reinvest is compounding;
Having a stock that doesn’t pay anything will also compound onto itself; a 10% per year means 10% the first time, then 11%, then 12.1%… This is what compounds means, regardless of if the cash touches your hands not.
The S&P 500 ETFs will come into two variations; Accumulating and Distributing.
A Distributing fund means you will get paid dividends coming from the underlying companies, usually bundled together in 2 or 4 yearly payments.
An Accumulating fund will not pay a dividend, but instead reinvest it into the same companies; the extra returns from such reinvestment will show into the ETF’s price.
If your goal is to reinvest the dividends into itself, there is no difference between the two methods. With Accumulating fund, you keep the same number of shares, but their price grow higher; with Distributing, you grow your number of shares, but their price doesn’t grow as fast; both are equivalent.
On a side note; it is possible that in your country, dividends payments from an ETF are taxed as income. If that is the case, you may want to prefer the Accumulating fund, but you should then also check with a tax advisor; ETFs are pass-through vehicles, meaning that regardless of the distribution policy of a fund, you may be liable for taxes on the dividends it receives, even if reinvested into itself.
Thanks for your time explaining this to me.
So we have 2 categories. the compound dividends
And the compound interest.
And the 3 one is the yearly one? That you said for example 10% first year…second 11%… and goes on.
Is there a difference in growing faster with the compound dividends than the interest or the 3 one?
Or what i should do is invest, get dividends or interest or that yearly and reinvent it back and that’s all?
I have watched many videos but that’s still confuses me. I guess is because i just started.
Compounding is the multiplication onto itself.
Wether you are getting interests that you reinvest, dividends that you reinvest, or just the stock price action, it’s all compounding.
Returns are expressed in %, often yearly. Getting “10% returns” means multiplying by 1.1. Over the course of multiple years, these compounds onto itself, regardless of cash touching your account or not (ie. dividends).
“Interests” is the just moniker for coupon payments from bonds (debt obligations)
“Dividends” is the equivalent (optional) coupon issued by stocks (equity).
But even without any cash transactions, returns always compound onto themselves.
Okey so if i invest and receiving dividends or internet or anything else. Im good if i reinvest that back. That way i get compound interest or dividends. Also you being very informative thanks!
