Avoid Drawdowns to Enhance Terminal Wealth

Building a successful investment portfolio requires a focus on both correlation and the management of drawdowns, especially during turbulent market periods. Rather than solely assessing average returns, emphasize the significance of terminal wealth over long-term horizons—such as maximizing returns over the next decade. Investors benefit from avoiding sharp drawdowns with prolonged recovery periods, as this allows for faster compounding. A diversified portfolio can mitigate losses during significant market downturns, leading to a quicker recovery and enhanced terminal wealth compared to portfolios that experience substantial losses.