Temporary Volatility and Permanent Return

Amar Pandit , CFA , CFP

February 17, 2023 | 2 Minute Read

This is one of the most important fundamental truths of investing. But the challenge is that it’s not very intuitive. Thus, we tend to dismiss the concept easily or rather not take it very seriously. But your success in investing rests on nailing this fundamental truth.

“Anything that suppresses/reduces temporary volatility must also suppress/reduce returns…”

There are 3 concepts in the above truth.

1. Volatility is temporary.

2. Returns are permanent.

3. And if you reduce this temporary volatility, you will also reduce permanent returns. Example: Fixed Deposit- Eliminate Volatility and you Eliminate Return.

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There is no other way and there is no person who can get you any other way.

So, the next time you hear someone peddling something that says otherwise, you know what to do – Nothing.