Reducing Volatility

Reducing the volatility of a portfolio is just as important as its investment return.

Lowering portfolio volatility has a powerful effect on building wealth over time. For example, the following chart shows how two investments built wealth over time. Both have an 8% average rate of return, but one investment is twice as volatile as the other. The portfolio with lower volatility ends up with 100% more wealth. We believe this is a critical component in the design of any portfolio.

Focus on Compounding, Not % Return

From 1950 to 2008, the arithmetic average annual return of the
S&P 500 has been 8x1% with a standard deviation of 17%.¹

Over that time period, an investment with the same return
but half the volatility creates over 100% more wealth.²

The above information is hypothetical and is meant as an illustration only.
Unmanaged indices are for illustrative purposes only. An investor cannot invest directly in an index. Past performance is no guarantee of future results.
Source: 1 Standard & Poor's and Bloomberg 2. Morgan Creek Capital Managment, LLC.