In my experience as a financial advisor, clients don’t like volatility.
Actually, that’s not quite right.
What they don’t like is volatility to the downside.
They are quite happy with it on the upside.
Fixed income investing legend Howard Marks believes that far too much attention is paid to volatility by investors. In his view, the primary risk concern is permanent loss—not volatility. In other words, risk is permanent loss not the vigorous ups and downs along the way.
He makes this spicy claim:
I’ll make a controversial statement here: in pure investment terms, there’s no intrinsic reason for long-term investors to be concerned with volatility (as distinguished from the risk of permanent loss). Warren Buffett famously says he’d “rather earn a lumpy 15% return than a smooth 12%.” Why wouldn’t everyone?1
Good point.
If I say, would you like 11% or 5%? You are going to want 11%. But if I say the pathway to get there is to endure swings of 89%, you may have a panic attack.
One of my favorite JP Morgan charts reminds us how volatility and returns work over the short and long-term, and it is one of the most important charts an investor should keep close.
As the wizard says, "Keep it secret. Keep it safe."
If you are wondering where I got that shocking 89% number, it is from that big green bar on the left of that chart. The 1-year return of the S&P 500 can have swings to the downside of -37% to the upside of 52%. When you zoom out to 5, 10, and 20 years, the volatility—to the downside at least—shrinks.
And the downside is what Cambridge Dictionary shows up as integral to the meaning of volatility itself: “the quality or state of being likely to change suddenly, especially by becoming worse.”2
Last week got a bit more volatile, and by that, I mean, “becoming worse.” According to the chart below, captured mid-morning Friday, some big names like Nvidia, Tesla, and Meta (Facebook) have been getting hit hard recently and the overall market has had a few hiccups too.
Welcome to investing.
If you are constantly paying attention to volatility, you may not be paying attention to the right thing.
Of course, this does not mean you should ignore it.
It usually means that what you need is an investment portfolio you can handle because the risk of your reaction to volatility—particularly on the downside—may be greater than the risk of permanent loss itself. It also means that your tendency to pay attention to volatility is when it’s accelerating to the downside, which may be the worst time to do so.
If you need help keeping your eyes fixed on the right things, we can help.
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Sources:
- “A Look Under the Hood”, October 28, 2025. Accessed online: https://www.oaktreecapital.com/insights/memo/a-look-under-the-hood
- Accessed online: https://dictionary.cambridge.org/us/dictionary/english/volatility