What if my Portfolio Value Goes Down Tomorrow after I Pay Recompound Fee?

Let's see the bigger picture.

TLDR: Do you want to cancel the service tomorrow? If yes, we are really sorry for the drawdown as we cannot predict short term price fluctuations. If no, our business goal is to consistently grow your portfolio, month on month (not just tomorrow) so that we are eligible for payout in the subsequent months.

As our fee structure purely depends on the growth of our clients’ portfolio, it is not uncommon to encounter questions regarding scenarios which can be unfavourable to our clients. A sizeable number of potential clients may ask:

What if my portfolio value goes down tomorrow after I pay Recompound fee?

The short answer has been mentioned in the TLDR above. We’d like to present a few key facts to supplement to this answer.

Key Fact #1: Equity Market Drawdown is Inevitable

Yes, our investment of choice is publicly listed shares. There will be buyers and sellers which affect the price. The price can go up or go down. If the price goes down, then our portfolio value may also go down depending on other stock prices in the portfolio.

If anyone is looking for fixed returns, that practically has 0 downside risks, there are other investment alternatives such as time deposits, government bonds, etc.

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In stocks, we try our best to limit your risk, but there is still risk nonetheless. Anyone who’s claiming that they can give you no risk with unlimited upside is either dishonest or committing an insider trading.

Key Fact #2: Higher Risk Higher Returns

If you have a look at a one year timeframe of our performance, it is easy to see that the returns is more decent than most investment instrument out there. However, there are risks involved.

You could pay attention in the middle of the chart where there is a notable dip in the portfolio value, lasting for a month and only recovered after two months. That is March 2023 during the Sillicon Valley Bank closure that causes a mini market crash. That represents the downside risk that our clients are taking when engaging in our services. The reason for a crash or market drawdown is very unpredictable. It could be because of a worldwide virus or a banking crash or a big player selling, etc etc.

Therefore, it is always wise to manage risk correctly as it would usually mean that the returns can be maximised. However, if risk is not managed at all, then it would cause portfolio to even decrease in value overtime (a.k.a. negative returns).

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Don’t believe us? Try purchasing stocks that are overly hyped in the social media with dubious management, huge short term debt and no business prospects. That is one recipe to have a portfolio value that will decrease consistently.

Key Fact #3: Luckily, Indonesian Equity Market is Growing

Indonesia as an emerging market has a rapidly growing population. Its political system is getting more stable which allows more businesses to prosper.

As we bet on the future prospects of Indonesia, it is reasonable to assume that the equity market (representing businesses) will also grow in value in the coming decade or so. In fact, since inception the IDX Composite has grown quite notably (after reading this article, feel free to go to your favourite data platform to check the growth).

Where does the growth come from?

• Overall increase retail investor participation overtime

• Overall increase in foreign investments into the capital market

• Real, growing companies that distribute dividends and get reinvested back into the capital market

• Good companies that get publicly listed which attract capital

So in theory, if you have all of the publicly listed stocks in Indonesia, in equal proportions, at all times, your portfolio value should grow from time to time.

Key Fact #4: Because of Key Fact Number 3, Bear Market is Usually Shorter than Bull Market

If bear markets are longer and more sizeable than bull markets, this means that Indonesian equity market is not growing. This contradicts key fact number 3 that we have established as a fact.

Closing Remarks

The four key facts in this article invite our audience to see the bigger picture. We are not in this game for one day (tomorrow) or one month or even a couple of months only. We are in this for the long term as we bet on the growth of Indonesia’s equity market.

Bonus key fact for you who have made it this far. Existing investment products (mutual fund) have a different answer to this question. That answer is: “we will keep charging you fees” even if the portfolio value goes down :)