Volatility of returns

In investment terms, a "risky" investment is a volatile one – an investment where returns can vary a lot from year to year.

Of course if it were possible, we would like to earn the highest possible return, with the lowest possible risk! However in investing, there is generally a trade-off between risk and return. That is, the higher the long-term potential return from an investment, the higher the short-term volatility.

So long as you are invested in good quality, well-diversified assets, then the longer you're invested for, the less volatile your returns become, but of course there are no guarantees that what’s happened in the past will always happen in the future.

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