Compounding Risk
Investors often fail at risk management.
Imagine your portfolio is cruising at 20% cagr for 5 year straight, your investment of ₹1.0L becomes ₹2.49L (+150% returns).
Lets look at 2 scenarios. lets assume your invested from 2020 till 2026 just over 6 years.
1. Market falls by20%% next year. Your portfolio is ₹1.66L down by -33.3% and cagr at the end is 10.7%.
2. Market grows next year 7% and falls by 10% next year, your CAGR is 12.75% and
Imagine your portfolio is cruising at 20% cagr for 5 year straight, your investment of ₹1.0L becomes ₹2.49L (+150% returns).
Lets look at 2 scenarios. lets assume your invested from 2020 till 2026 just over 6 years.
1. Market falls by20%% next year. Your portfolio is ₹1.66L down by -33.3% and cagr at the end is 10.7%.
2. Market grows next year 7% and falls by 10% next year, your CAGR is 12.75% and
Sequence of returns — impact of a one-year fall
A drawdown occurs in year 1, then the portfolio compounds at the set CAGR for the remaining years.
20%
L
Terminal value (₹ lakhs)
Net CAGR
Drawdown vs peak (₹ lakhs & %)
Gap between portfolio value and where it would have been without the fall. — means fully recovered.
certification and service marks (the CFP Marks) outside the United States, and permits 
