You’ve probably heard “The stock market returns about 10% per year.” While that sounds great, in reality your portfolio doesn’t grow 10% per year and can mislead investors.

Average returns are not the same as actual investor outcomes and not understanding the difference can lead to disappointing results, unnecessary risk, and poor timing decisions.

The stock market doesn’t rise by 10% every year. Returns move up and down, sometimes dramatically. When markets fall, your investment balance shrinks. Future gains then compound on a smaller base, making it harder to recover.

Start with $100,000
Year 1: –20% → $80,000
Year 2: +20% → $96,000

The average return is 0%, yet you are still down $4,000. Losses hurt more than gains help.

The market’s long-term average may be around 10%, but investors rarely experience those returns evenly. Large declines create volatility drag and reduces long-term growth even when average returns look strong.

Lower Volatility Portfolios May Lead to Better Results

Now compare two portfolios over the same period of time.

Portfolio A: Higher Returns, Higher Volatility

Average return: 10%
Experiences large swings, including significant losses

$100,000 grows as follows:
Year 1: +30% → $130,000
Year 2: –25% → $97,500
Year 3: +25% → $121,875
Year 4: –20% → $97,500
Ending value: $97,500

Portfolio B: Lower Returns, Lower Volatility

Average return: 7%
Smaller, steadier gains

$100,000 grows as follows:
Year 1: +8% → $108,000
Year 2: +6% → $114,480
Year 3: +7% → $122,494
Year 4: +6% → $129,844
Ending value: $129,844

Despite a lower average annual return, Portfolio B finishes with significantly more money because it avoids large losses and allows compounding to work more efficiently.*

The Role of Diversification

Diversification is one of the most effective ways to reduce volatility.

By spreading investments across different asset classes, diversification helps smooth returns. When one area struggles, others may hold steady or rise.

Lower volatility:

• Reduces severe drawdowns
• Improves compounding efficiency
• Helps reduce anxiety
• Increases the likelihood of achieving long-term goals

Diversification doesn’t eliminate risk, but it helps manage it in a way that supports consistent growth.

The Bottom Line

Successful investing isn’t about chasing the highest average return.

It’s about building a diversified portfolio that:

• Manages risk intelligently
• Reduces volatility
• Supports long-term compounding
• Helps you stay invested through market cycles

Sometimes the turtle beats the rabbit!

At Opal Advisors, we believe successful investing isn’t about chasing headline returns — it’s about building diversified, risk-aware portfolios designed to perform in the real world.

If you want an investment approach built around consistency, diversification, and long term growth, we’d welcome the opportunity to talk.

Schedule a conversation with Opal Advisors to see how a smarter approach to risk and return can work for you.

Disclosures

*The examples above are hypothetical and for illustrative purposes only and do not represent actual investment results or any specific portfolio.

This article is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security or investment strategy. The information presented is general in nature and may not be appropriate for all investors.

The performance examples shown are hypothetical and are provided for illustrative purposes only. Hypothetical performance does not reflect actual trading, does not include the impact of fees, taxes, or transaction costs, and may not reflect the effect of material economic and market factors. Actual results may differ significantly.

All investing involves risk, including the possible loss of principal. Diversification and asset allocation do not ensure a profit or protect against loss. Lower volatility does not guarantee higher returns or better outcomes.

Opal Advisors, LLC is an SEC-registered investment adviser. SEC registration does not imply a certain level of skill or training. For information about our services, fees, and conflicts of interest, please refer to our Form ADV Part 2A and Form CRS, available upon request or on our website.