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Reduce Volatility

As a trader, you thrive on volatility for your professional success. You welcome large fluctuations in the markets when you trade because they provide ample opportunity for you to get in and get out with edge you've developed over the years. Whether you are in the pit or trading electronically, volatility (along with the trend) can be your biggest friend.

Unfortunately, the case isn't so when it comes to your long-term investments and financial health. In fact, volatility can wreak havoc on your portfolio and reduce your compound returns and therefore, the amount available to you and/or your family. For this reason, our investment philosophy has not only been to insulate against severe loss, but also to smooth out the volatility of your returns so as to provide superior risk-adjusted compound returns.

Reducing the volatility of your portfolio can be a tricky business. In the recent past, we have experienced volatility in the equity markets which would have provided for a rough ride had you not invested properly. The tech-bubble of the late 1990s, the bear market after September 11th and the recessionary period which began in late 2007 are 3 examples in the last 10 years of volatility that could have severely impact your bottom line.


In the following example, two portfolios perform with the same average of 8% return over 16 years. However, Portfolio A's returns have more volatility (30% one year, -14% the next) while Portfolio B was better at reducing the volatility of returns (20% one year, -4% the next). As you can see, the bottom line effect after 16 years is a difference of $661,030.

Portfolio A
Beginning Value: $1,000,000
Average Return: 8%
Years: 16 years
Volatility: +30%, -14% (every other year)
Compound Return: 5.74%
Ending Balance: $2,440,813

Portfolio B
Beginning Value: $1,000,000
Average Return: 8%
Years: 16 years
Volatility: +20%, -4% (every other year)
Compound Return: 7.33%
Ending Balance: $3,101,843

$661,030 Difference

Display of Stock Market Quotes

The effect of volatility necessitates proper investment management. You need to use the proper tools in your portfolio to provide you with the edge in volatile markets. At Trader Wealth Management, we concentrate on reducing the volatility of your returns by diversifying with asset classes that have a low (or negative) correlation to your current holdings. We also employ investment strategies and products that aim to capture most of the upside, while still protecting from the downside risk. With this strategy, we may miss the big bubbles that can provide volatile, positive returns; however, we also can expect to miss the bursts that cause considerable long-term damage. In the end, you receive investment management with a focus on the big picture and the ability to produce superior, after-tax, risk-adjusted compound returns for your portfolio.



Main Office
Trader Wealth Management, LLC
509 W Old Northwest Highway, Suite 240
Barrington, IL 60010

CBOT Office
The Chicago Board of Trade Building
141 West Jackson Boulevard, Suite 1404
Chicago, IL 60604

312.697.2950 | Phone | Email


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