{"id":8408,"date":"2022-12-11T19:27:47","date_gmt":"2022-12-11T13:57:47","guid":{"rendered":"https:\/\/bltpindia.com\/wordpress\/?p=8408"},"modified":"2022-12-19T10:21:21","modified_gmt":"2022-12-19T04:51:21","slug":"how-compounding-works","status":"publish","type":"post","link":"https:\/\/bltpindia.com\/wordpress\/index.php\/2022\/12\/11\/how-compounding-works\/","title":{"rendered":"How Compounding Works?"},"content":{"rendered":"<button id=\"listenButton1\" class=\"responsivevoice-button\" type=\"button\" value=\"Play\" title=\"ResponsiveVoice Tap to Start\/Stop Speech\"><span>&#128266; Listen to this<\/span><\/button>\n        <script data-jetpack-boost=\"ignore\">\n            listenButton1.onclick = function(){\n                if(responsiveVoice.isPlaying()){\n                    responsiveVoice.cancel();\n                }else{\n                    responsiveVoice.speak(\"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? 10 Year SIP Return 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? There are three steps solution to this issue. Understand what is compounding. Find out the Problems. Prepare a Strategy and apply it. What is Compounding? First of all, we have to understand what is compounding. The compound exists in interest only. As per Wikipedia Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Compound interest is standard in finance and economics. But see what happens with our Investment? In general, we are following the Buy and Hold strategy (Because of Authority Bias - Buy & Hold is the best theory) or SIP (Buying at every level - Again because of Authority Bias \\\"SIP KARO MAST RAHO\\\") in investment. In both strategies we are very less concerned about market risk, Due to what we have earned a lot during the Uptrend, the entire Notional Gain converted into Notional Loss during the downtrend (Market Correction). Which keeps us away from experiencing The Power of Compounding. See the table how quickly our profit vanished during the disruptions in the market. Then What to do? Now, this is a big question How can we change the experience? We have to work hard for experiencing The Power of Compounding, and for that, we have to correct our way of investing. To experience the power of compounding we need to follow the definition of compounding interest i.e. the Interest(returns) we earned should be added to the principal so we can earn more Interest(returns) on the Interest(return). for that we need to define a proper strategy to save and secure our profits at a certain level and redeploy it at a comfortable lower level then only we can experience The Power of Compounding. For this again we have to come out of the Authority Bias. We have been told that \\\"We should not do the timing because can not\\\" by the Authorities of the industry. For designing a new strategy we should define Compounding strategic way. Definition of Real Compounding in Investing should be describe as following Real Compounding= ((Diversification with Asset Allocation) + (Rebalancing with Risk Management.)) x (Long horizon with Patience) By Diversifying investment in Proper Asset Allocation we can assure safety of our portfolio. By Rebalancing with Risk Management we can minimize the Risk Involved in our Investment. By Multiplying with Long Horizon with Patience we can earn Real Compounding.\", \"Hindi Male\", {\"rate\":\".9\",\"pitch\":\".8\"});\n                }\n            };\n        <\/script>\n    \n\n\n\n<p>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.<\/p>\n\n\n\n<p>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 &#8220;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.&#8221; <strong>Why The Power Of Compounding didn&#8217;t work in my Mutual Fund Portfolio?<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img data-recalc-dims=\"1\" loading=\"lazy\" decoding=\"async\" width=\"536\" height=\"120\" data-attachment-id=\"8522\" data-permalink=\"https:\/\/bltpindia.com\/wordpress\/index.php\/2022\/12\/11\/how-compounding-works\/10-yr-sip-rtn-2\/\" data-orig-file=\"https:\/\/i0.wp.com\/bltpindia.com\/wordpress\/wp-content\/uploads\/2022\/12\/10-yr-sip-rtn-2.png?fit=536%2C120&amp;ssl=1\" data-orig-size=\"536,120\" data-comments-opened=\"1\" data-image-meta=\"{&quot;aperture&quot;:&quot;0&quot;,&quot;credit&quot;:&quot;&quot;,&quot;camera&quot;:&quot;&quot;,&quot;caption&quot;:&quot;&quot;,&quot;created_timestamp&quot;:&quot;0&quot;,&quot;copyright&quot;:&quot;&quot;,&quot;focal_length&quot;:&quot;0&quot;,&quot;iso&quot;:&quot;0&quot;,&quot;shutter_speed&quot;:&quot;0&quot;,&quot;title&quot;:&quot;&quot;,&quot;orientation&quot;:&quot;0&quot;}\" data-image-title=\"10 yr sip rtn\" data-image-description=\"\" data-image-caption=\"\" data-medium-file=\"https:\/\/i0.wp.com\/bltpindia.com\/wordpress\/wp-content\/uploads\/2022\/12\/10-yr-sip-rtn-2.png?fit=300%2C67&amp;ssl=1\" data-large-file=\"https:\/\/i0.wp.com\/bltpindia.com\/wordpress\/wp-content\/uploads\/2022\/12\/10-yr-sip-rtn-2.png?fit=536%2C120&amp;ssl=1\" src=\"https:\/\/i0.wp.com\/bltpindia.com\/wordpress\/wp-content\/uploads\/2022\/12\/10-yr-sip-rtn-2.png?resize=536%2C120&#038;ssl=1\" alt=\"\" class=\"wp-image-8522\"\/><figcaption class=\"wp-element-caption\"><strong>10 Year SIP Return<\/strong><\/figcaption><\/figure>\n<\/div>\n\n\n<p>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 <strong>Why the Power Of Compounding didn&#8217;t work <\/strong>in our MF Portfolio and what are the steps to be taken to get it worked?<\/p>\n\n\n\n<p>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&#8217;s investments.<\/p>\n\n\n\n<p>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.<\/p>\n\n\n\n<p>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?<\/p>\n\n\n<div id=\"rml_readmorelogin_placeholder\" style=\"position:relative;\"><div id=\"rml_fade_content\" style=\"position: absolute;\r\ntop:-10em;\r\nwidth:100%;\r\nheight:10em;\r\nbackground: -webkit-linear-gradient(rgba(255, 255, 255, 0) 0%,#ffffff 100%);\r\nbackground-image: -moz-linear-gradient(rgba(255, 255, 255, 0) 0%,#ffffff 100%);\r\nbackground-image: -o-linear-gradient(rgba(255, 255, 255, 0) 0%,#ffffff 100%);\r\nbackground-image: linear-gradient(rgba(255, 255, 255, 0) 0%,#ffffff 100%);\r\nbackground-image: -ms-linear-gradient(rgba(255, 255, 255, 0) 0%,#ffffff 100%);\"><\/div><div class=\"wpf-controller aru_rml_from_in_post\" style=\"background-color:#eeeeee;border:5px solid #cce6ff;\" id=\"ARU_ReadMoreLogin_ReadMoreLoginController\"><h2 id=\"Header\">Read more<\/h2><div id=\"Message\"><p>You must log in to read the rest of this article. 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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 [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[38,46,55],"tags":[7,56,57],"class_list":["post-8408","post","type-post","status-publish","format-standard","hentry","category-bltp","category-financial-literacy","category-investment-lessons","tag-bltp","tag-financial-literacy","tag-investment-lessons"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[],"jetpack_likes_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7QcqY-2bC","_links":{"self":[{"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/8408","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/comments?post=8408"}],"version-history":[{"count":16,"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/8408\/revisions"}],"predecessor-version":[{"id":8690,"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/8408\/revisions\/8690"}],"wp:attachment":[{"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/media?parent=8408"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/categories?post=8408"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bltpindia.com\/wordpress\/index.php\/wp-json\/wp\/v2\/tags?post=8408"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}