When it comes to investing money at risk; steady wins the race. No matter what your average return is over time, steady gains will always outperform volatile gains. It’s a simple matter of math. If I have $100,000 and I earn 10% three years in a row; 10% year one, 10% year two, etc… At the end of three years, I’ll have $133,000 with the compound. Now, if my gains are more volatile I earn 30%, then 10%, then I lose 10%; that’s still an average return of 10%. But after three years, I won’t have $133,000, I’ll have $128,000. What if it’s more volatile? What if I make 50%, then make 10% and then to lose 30%? I now have $116,000 instead of $133,000. Steady gains always win the race.

Coupling steady gains with understanding the cruel math of losses and managing downside risk can help insulate against choppy markets. If you lose 33%, you’ve got to make 50% just to get back to where you started. And in choppy markets, it becomes especially important that you minimize that downside risk to benefit from the idea that steady wins the race.

Now, as I’ve been talking about in the last few weeks, I see very choppy markets for the next 10 years. In the next year or two, who knows? But looking out ten years with where stocks are priced and where we’re headed economically with the sluggish growth in the US, in Germany, in Japan, and in China; I just see choppy markets. I think the markets will go up, just maybe not 10% per year. Remember, steady gains win the race.