Volatility – A Key Hurdle to Building Long-Term Wealth
If I lose 20% of my money this year, but I’m up 20% next year, I’m back to even, right?”
At first glance, this may seem correct, but it doesn’t accurately reflect the effect of losses on an investment portfolio. Understanding the difference between arithmetic and geometric returns and how they relate to portfolio value is essential to understanding what volatility means to your long-term investment success.