Order Matters

Many investors, especially those with longer time horizons, tend to overlook the impact that volatility can have on their portfolio. However, the path of returns is not a factor to be ignored and a recent piece by Amy Arnott helps illustrate this point through several examples. She highlights the impact of positive returns early in a portfolio’s lifecycle compared to the equivalent returns at the end of a portfolio’s time horizon. The result is that early positive returns provide a more profound impact on a portfolio’s value due to the power of compounding. Additionally, Arnott revisits a common theme in personal finance, which is the danger of significant losses due to periods of drastic drawdown, thus requiring rebounds of higher proportions to simply recoup prior losses. Our team at Viewpoint recently published a four-part blog series entitled “Understanding Risk” where we dove into the impact of volatility on portfolio performance and the probability of realizing an individual’s investment goals. Prudent investment management includes an awareness of how volatility can impact portfolio performance, especially in the midst of a global pandemic.