Don’t get caught in the “volatility drag”

Capital Group highlights that strong returns alone can be misleading if they come with high volatility and deep losses. Even modest drawdowns can slow long-term wealth creation, since the gains needed to recover from losses rise quickly as declines deepen.

For advisors and investors, the focus should extend beyond performance to risk-adjusted results and how a portfolio behaves in both rising and falling markets. Measures such as Sharpe ratio, upside capture, downside capture, and long-term hypothetical wealth growth can help compare options more clearly.

The key message is that downside resilience matters as much as upside potential. In uncertain markets, strategies that limit large losses may offer a better path to durable compounding over time.