Let’s start with an uncomfortable truth.
Chasing returns feels amazing.
There’s a rush to it, a sense of being early. That smug little voice that says, “I knew this was a good idea.” For a while, everything looks clever. Graphs go up. Confidence swells. You briefly consider adding the word “strategy” to casual conversations.
And then… inevitably… things change.
Markets wobble. Headlines turn dramatic. Your once-brilliant investment starts behaving like it’s forgotten who you are. This isn’t because you’re bad at investing. It’s because chasing returns is designed to feel good, right up until it doesn’t.
Why We’re All Drawn to the “Hot” Investment
Humans are wired for patterns, stories, and reassurance. So when something:
- Did well last year
- Is being talked about everywhere
- Comes with a confident explanation
…it feels safe. Logical, even.
It’s the financial equivalent of thinking, “Everyone’s wearing this so it must be a good idea.” The problem is that last year’s winner is often just last year’s trend, and trends, whether in markets or wardrobes, have a habit of ageing badly.
As Warren Buffett once put it in a letter to his shareholders:
“Only when the tide goes out do you discover who’s been swimming naked.”
Which is a cheeky way of saying that things can look excellent right up until conditions change.
The Bit No One Mentions: Volatility Hangovers
Here’s where it gets unintentionally rude. Two portfolios can earn the same average return over time and end up in completely different places. The difference?
Volatility.
Losses don’t cancel out gains in a neat, well-behaved way. If a portfolio drops by 30%, you need a 43% gain just to break even, by contrast a 10% drop only needs 11%. Big drops create what I like to call recovery debt, the silent killer of long-term plans. It’s why portfolios that look exciting in good years often struggle to deliver over decades. This is also why people feel like investing “doesn’t work”. Not because markets fail, but because volatility does damage while no one’s looking.
When a Portfolio Looks Amazing… Until You Try to Live With It
Many investment strategies are built to shine in rising markets. They:
- Grow fast
- Swing hard
- Look fantastic in hindsight
They are the financial equivalent of something that looks incredible in the mirror, but requires:
Perfect posture
Zero weather
Not too much movement
When markets fall (which they do, regularly and without apology), these strategies tend to drop harder which cause stress and can trigger panic decisions. It is these panic decisions are how temporary market downturns become permanent financial mistakes. This is why good advice focuses less on excitement and more on structure. The same thinking that underpins how strategies are built at What If Advice. Less adrenaline, more staying power.
The Boring Bit That Does Most of the Work
Now for the good news.
In Australia, investing isn’t just about hoping prices go up. Shares also generate income (dividends), which tend to be far more stable than share prices, often enhanced by franking credits, surprisingly effective at smoothing the ride.
Capital growth is exciting.
Income is dependable.
Blend them thoughtfully, and you can reduce volatility without giving up growth altogether. Less drama, fewer sleepless nights, and more compounding quietly happening in the background while you get on with life. Think fewer hero moments. More reliability.
Why This Really Matters
Volatility becomes genuinely dangerous when money is being used, not just invested.
If you’re:
- Approaching retirement
- Drawing income
- Relying on your portfolio to behave itself
Then bad timing can permanently impair outcomes. This is known as sequencing risk, which is the technical term for “the market chose violence at exactly the wrong moment”. Portfolios built to survive every year tend to outperform those that occasionally look spectacular but fall apart under pressure.
Even ASIC’s MoneySmart resources spend a surprising amount of time warning about this, because it’s one of the most common ways sensible people end up disappointed.
The Takeaway
Chasing returns feels good because it taps into confidence, momentum, and optimism. But long-term success usually comes from something far less glamorous.
- Avoiding big, unrecoverable losses
- Reducing unnecessary swings
- Letting compounding do its thing uninterrupted
Once that’s in place, investing stops feeling like gambling, and starts feeling like something quietly working in the background.
No panic.
No constant tinkering.
No emotional hangovers.
Luke Morris BCom(FinPlan) is an Authorised Representative (001271688) of WIAA T/A What If Advice Pty Ltd, a Corporate Authorised Representative of Beryllium Advisers Pty Ltd AFSL 528250.
Disclaimer: This article contains general advice only and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement
