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How Important is it to Minimize Volatility?

At Chariot, our goal is to reduce volatility while optimizing returns in our portfolios, whenever possible.

The following chart is designed to show how reduced volatility in a portfolio might lead to better long-term results. Neither of these portfolios represents the returns of Chariot Advisors’ clients. The chart shows hypothetical returns for two different portfolios over a 5-year period. Both Portfolio 1 and Portfolio 2 experienced three years of positive returns and two years of negative returns. Portfolio 1 has more dramatic swings from year to year – higher negative returns and higher positive returns.

Now let’s look at what impact higher volatility can have on the growth of a portfolio worth $100,000 from five years ago. As you can see, Portfolio 2 with less volatility (including less upside during positive years) produces $10,199 more than Portfolio 1 during the same period of time. That is a difference of 10.2%!

Disclaimer: All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of a portfolio. No assurance is made that the portfolio constructed will perform as expected and it may prove to be more volatile than anticipated. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.


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