It's human nature to be optimistic about an investment. Most investors pay more attention to the potential reward than risk. But simple math illustrates that managing portfolio volatility can not only help avoid painful surprises, but is also a key ingredient to superior long term results.
Below is an example of three hypothetical investment portfolios. Each portfolio delivers the same average annual return, yet provide different amounts of volatility.
Year 1
Year 2
Year 3
Year 4
Average Return
Compounded
Total Return
Portfolio A
10%
10%
10%
10%
10%
10%
Portfolio B
25%
5%
-10%
20%
10%
9%
Portfolio C
40%
-25%
35%
-10%
10%
-6%
While Portfolio B & C substantially outperform Portfolio A during certain years, the more consistent results from Portfolio A results in higher overall return. Consistent results and low volatility are a key ingredient for superior long term investment returns.
Anchor Capital Management Group, Inc., is a Securities and Exchange Commission Registered Investment Advisor. This site is intended for informational purposes only, and any information contained herein should not be construed as a solicitation to buy nor an offer to sell securities. Online Security | Privacy Policy | Copyright 2008
