Volatility Won’t Ruin You - Bad Strategy Will.

Every investor has been taught - either by an adviser, a fund manager, or the financial media - that volatility equals risk and is therefore a bad thing.

If your balance goes up and down a lot, you’re “high risk.”

If it barely moves, you’re “low risk.”

Sounds tidy.

Sounds scientific.

Sounds like something an MBA would put on a whiteboard.

But in the real world?

Volatility is one of the least important risks faced by everyday investors.

The real dangers are far more practical, behavioural, and human.

Let’s break them down.

Volatility Doesn’t Hurt You - Poor Decisions Do

A portfolio dipping 10% doesn’t destroy wealth.

Selling after it dips 10% does.

Volatility is simply the market changing its mind in the short term. It is not the same as loss.

It only becomes a loss when someone panics, sells, and locks it in permanently.

Think about it:

• Every market crash in history eventually recovered.

• What didn’t always recover? The portfolios of people who bailed out.

This is why volatility is a distraction.

The behaviour it triggers is the real risk.

A Real Example: CBA Is Volatile, but Not Risky and it’s Just One Example

If you want proof that volatility and risk are not the same thing, look at one of Australia’s most stable, profitable companies: Commonwealth Bank (CBA).

CBA’s share price jumps around constantly:

• It can fall 10% in a bad quarter

• It can drop 20–30% during a market scare

• It wobbles with interest rate cycles and economic headlines

That’s volatility.

But it’s not risk.

Zoom out and you find:

• CBA has paid dividends for decades

• It has grown its earnings consistently

• It dominates its market

• It has rewarded long-term shareholders handsomely

If someone judged CBA by its month-to-month price swings in isolation, they’d call it “high risk.”

But if they judged it by its fundamentals, it’s one of the least risky investments you could own.

Volatility is movement.

Risk is the chance of permanent loss.

CBA moves around a bit.

But it hasn’t destroyed wealth - it has built it.

Conclusion:

Volatile? Yes.

Risky? No.

A high-quality asset can bounce around without being dangerous.

The Hidden Risks Inside “Low-Risk” Assets

One of the biggest myths in the industry is that assets with low volatility are automatically “low risk.” In reality, some of the most dangerous investments are the ones that hardly move at all - right up until they blow up.  

Take mortgage investments, for example. They often look beautifully stable on paper, with smooth lines on reports and predictable income… until the moment a borrower stops making repayments. Suddenly the asset goes from “low risk” to “no liquidity,” and investors realise the stability was an illusion.

Property/Infrastructure/Private Equity/Credit can be similar. Valuations might provide steady progress for years, giving the impression of low volatility. But that’s simply because no one is pricing it daily. The moment the asset is actually sold, any shortfall between book value and reality becomes a permanent loss, not a temporary wobble. The absence of visible volatility doesn’t make something safe -it often just hides the risk until it’s too late.

The Industry Has Obsessed Over the Wrong Thing

Financial institutions love measuring volatility because:

• It’s easy to quantify

• It looks scientific

• It produces impressive-looking charts

• It allows advisers to claim they’re “managing risk”

Meanwhile, clients sit across the table and think:

“I just want to know the money will be there when I need it.”

Volatility doesn’t answer that question.

Good planning does.

Real Risk #1: Running Out of Money

This is the risk that matters.

People aren’t scared of a negative quarter.

They’re scared of being 82 with no income.

Ironically, avoiding volatility and staying in “safe” assets can increase this risk:

• Cash loses to inflation

• Under-investing limits growth

• Conservative portfolios struggle to compound

Sometimes, the fear of volatility creates the exact outcome people fear most.

Real Risk #2: Taking Too Much Risk at the Wrong Time

The danger isn’t being “aggressive.”

The danger is being aggressive when you need the money soon.

Investing a house deposit you need in 18 months?

Volatility matters.

Investing for retirement in 15 years?

Volatility is background noise.

Timeframe - not personality - determines appropriate strategy.

Real Risk #3: Behaviour, Not Markets

If volatility were truly dangerous, we could eliminate risk by choosing cash.

But cash has its own guaranteed risks:

• Inflation erodes it

• It doesn’t grow

• It doesn’t compound

• It won’t build wealth

A portfolio that jiggles is far safer than one that stays still forever.

Real Risk #4: Being Sold the Wrong Product

Risk profiling can justify:

• Higher-risk products

• Overly aggressive strategies

• Funds that blow up when markets fall

• Products that look good in good times but collapse in bad times

And when things go sideways?

“But you said you were an aggressive investor.”

It becomes a shield for advisers, not protection for clients.

Real Risk #5: Not Having a Strategy You Can Stick To

The right strategy is the one you can stay committed to, through both market sunshine and storms.

• It lets you sleep at night

• It aligns with your goals

• It keeps you invested during downturns

• It protects you from emotional mistakes

A strategy you can’t stick to is worthless, no matter how good it looks on paper.

So What Is the Real Definition of Risk?

Here’s what risk actually means:

Risk is the probability of failing to meet your goals.

Not the probability of a temporary dip.

Not the volatility score on a brochure.

Not the number spat out by a questionnaire.

Your goals.

Your timeline.

Your ability to stay invested.

That’s real risk.

Final Thought: Markets Don’t Hurt People - Bad Frameworks Do

Volatility isn’t the villain.

Fear is.

Confusion is.

Panic-selling is.

Product misalignment is.

Tick-box profiling disguised as expertise is.

Your adviser’s job is not to eliminate volatility - that’s impossible.

Their job is to make volatility irrelevant.

And that’s exactly how you protect capital and grow it sensibly…

Without risking the family farm.