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I am buying a 3 foot tall avocado tree (¼-½ in. diameter stem) that I want to keep potted long term as opposed to planting in the ground. Is it better to repot the new tree in a slightly larger pot and increase size each year or two, or better to repot in a more permanent large pot from the beginning?

What are the downsides to repotting a new tree in a large pot vs. increasing size over the years?

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Avocados are very sensitive to transplantation, repotting, or any disturbance to the fine roots very near the soil surface. Therefore, I would immediately transplant the new tree into a half-barrel or whatever the largest pot you can accommodate.

The big issue is filling that pot with a soil mixture that will last for 10 or more years without repotting. My approach has been to drill multiple 1-1.5cm drain holes in the bottom of the barrel, then start with 4 or 5 cm of coarse wood chips or gravel to ensure good drainage. The bulk of my soil is a 50:50 mixture of some kind of container or raised garden (heavy potting) soil and mineral topsoil from my yard. Then, I put 5cm or so of mulch or bark chips on top, retain all dropped avocado leaves on top of that, and add mulch or bark chips every year or 2 to keep the top near the top of the barrel.

So far, so good, but that's only 6+ years in the pot.

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