How Compounding Works?

In the last two Articles Volatility Part-1 and Part-2, we have discussed how it hurts our portfolio and how it prevents us to experience Real Compounding. Today we will discuss a real-life example.

In July 2020 I received a call from a new investor (He got my ref from my existing Investor) during the entire call he was complaining that “you all IFAs are good Story Tellers but when it comes to performance you all are below average. My earlier IFA was telling me that you may get The Power of Compounding in Mutual Fund if you keep your horizon long but today, keep compounding a side, normal FD interest is also not coming after 10 long years, which is not short-term.” Why The Power Of Compounding didn’t work in my Mutual Fund Portfolio?

I think he was not wrong at some angle and his question/complaint is an eye-opener for all of us. In the current market scenario, we all are facing the same feeling. Today we are going to discuss what is the reason Why the Power Of Compounding didn’t work in our MF Portfolio and what are the steps to be taken to get it worked?

At some point, we all are good Story Teller, no doubt that being a good advisor should be a good Story Teller but we should also know that we should commit that much only to what we can perform. It is true that if the market is not in our control then we should try to generate proper returns and safety for the client’s investments.

Remember by Story Telling we can attract new clients but hand-holding that client for a longer period will be decided by the gap between the expectations of an Investor on his Portfolio and the output of your Advisory Services on That Portfolio.

Everybody wants to generate compounding from their Investments, but very few of them get successful. What is the reason behind it? What is the hurdle?