Investors should think about volatility as well as mean returns when planning and analyzing their portfolios.
If we could remain investors for long periods and did not need to take money out for any reason, then volatility would be of less concern. However, the shorter the time horizon for expected withdrawals, the more important volatility (return standard deviation) becomes.
Standard deviation is an important factor in the retiree question “Can I outlive my money?”
Proper allocation among asset classes in light of volatility is a critical aspect of portfolio design for investors who have changed, or are about to change, life stages from accumulation of assets to consumption of assets.
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