True or false? It doesn’t matter how much an investment goes up or down in value, as long as the average return over time is good.
If you chose “true,” you’re wrong. But you’re not alone. Many investors don’t realize the impact volatility can have on returns over time.
I’ve written previously about market volatility and how severe volatility can hurt overall portfolio return.
It should always be understood, when in the market, that volatility comes with the territory. Still, investors can manage the impacts of volatility through portfolio diversification. Diversification doesn’t assure a profit or protect against a loss in a market decline, but it can help to smooth the shocks in an investment portfolio.