willthrill81,willthrill81 wrote: ↑Sat Jan 19, 2019 7:53 pmThere is certainly a balancing act involved. We can agree on that point. It's called personal finance for good reason.aristotelian wrote: ↑Sat Jan 19, 2019 7:46 pmI think it is interesting to know that reducing your volatility by, say, 20%, only reduces your annual returns by perhaps 10%. If you value stability, you don't have to give up that much return to get some. It is still a meaningful concept.willthrill81 wrote: ↑Sat Jan 19, 2019 7:21 pmAfter all this time hearing discussion about it, I still fail to see why the efficient frontier should matter at all to the retail investor. You can't 'eat' a risk-adjusted return, only a real one. What does it matter if your risk-adjusted return was very high but your real returns were insufficient to help you reach your goals?
That said, absolute returns matter too. It's all a question of balance, triangulating various goals, risks, and timeframes.
I suppose my problem with focusing on volatility is that the likelihood of a fluctuating value of an investment between the time of purchase and sale is only meaningful to the extent that it impacts whether the investor can stay the course. For investors who aren't concerned about the intervening fluctuation, volatility and, in turn, risk-adjusted returns are literally pointless. Granted, there probably aren't many such investors at that end of the spectrum, but there are a lot out there who don't care much about volatility.
To the extent then that an investor is unconcerned about volatility, modern portfolio theory's usefulness, along with the concept of risk-adjusted returns, diminishes rapidly.
<<To the extent then that an investor is unconcerned unaffected by volatility, modern portfolio theory's usefulness, along with the concept of risk-adjusted returns, diminishes rapidly.>>
We need to change one word from your statement. A lot of folks are unconcerned about volatility. But, it is not good enough. They have to be unaffected by volatility.
For example, just because someone is unconcerned about unemployment, it does not mean that they would not be unemployed and unemployment cannot affect them.