The Efficient Frontier

Here is the article.

My favorite reading is to talk about 2008 bear market with 42% loss of SPX.

Consider the year starting in October 2008. The S&P 500 went from 1,166.36 to 1,057.08, down 9%. For the year, losing 9% seems like a relatively reasonable loss. But the roller-coaster ride bottomed out at 682.55 before recovering. Had you asked investors if they were willing to lose 42% and then from that point gain 55% (as measured from the new low), they might have balked at the volatility.

This is why time horizon matters. There is a reversion to the mean return, but it requires a long enough investment period to revert. Volatility in the long term is much less of an issue than it is in the short term.