Gleeson: Risk is in the eye of the beholder

It is perhaps unhelpful that the investment industry is wedded to the notion that volatility is analogous to risk. Volatility is a simple measure of market movements and is often misunderstood.

Expressed as a percentage, it describes the range around the average return one could expect to receive in the future.  For example, if a fund has an average three year return of ten percent and volatility of ten per cent, the range of returns you could reasonably expect is between eight and twelve percent. Of course there are a large number of assumptions bundled into this example in order to maintain simplicity, but we can still draw several important conclusions from it. The key one is that a likely minimum return of eight per cent does not seem all that risky.  This really is the cru...