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Hi,
I am a beginner and having difficulty understanding the compounding investment. My understanding is that I am supposed to hold the stock for the long term but to benefit from the compounding interest rate, I have to use the earning to reinvest in the same stock, but how can that happen if I am holding the stock?

Also, I have another question about the suggested 25 stocks strategy. I am planning to buy the new recommended stocks every month. This means in about two years; I would have 25 stocks. What should I do after that? Should I start another cycle of 25 stocks, or should I add to the already existing ones?
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No. of Recommendations: 1
Compound interest is clearest if you are talking about investments like in a savings account or a bond fund. By reinvesting the interest payments, you earn still more money and your balance grows faster.

You can achieve the same effect with stocks when you reinvest dividends to buy more shares. Some brokers will do exactly that. But for me accumulating dividends in the brokerage account and adding them to my next investment achieves the same goal with a bit less paperwork.

Each time you invest, you should invest in the best opportunity at the time (with reasonable diversification). That implies weeding your garden from time to time, selling the under achievers, and buying whatever is best at the time.

A huge portfolio can be difficult to manage. Keeping up with the news on all the stocks can be a chore. It's better to set some limits on the number of stocks you own. As your investments grows, that implies owning more of your best stocks.
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