Three rules. Reading a return number that actually compounds in your account.
The brochure number is one half of a sentence. The volatility number sitting next to it is the other half. The wedge between arithmetic and geometric is the price your portfolio pays for the swing. Three checks before you sign the cheque.
01
Read the volatility next to the return. They belong together.
A 12 pct return with 14 pct vol and a 12 pct return with 28 pct vol are not the same product. The first compounds at ~ 11 pct. The second compounds at ~ 8 pct. Same headline, different cheque. Ask for the standard deviation on every factsheet, the rolling worst window, and the max drawdown. If the rep cannot quote all three, the brochure is half a page.
02
Geometric is what compounds. Arithmetic is what sells.
Geometric ~ arithmetic minus sigma squared over two. The drag scales with vol squared, so doubling the volatility quadruples the penalty. Add up vol numbers across your portfolio, then subtract their square halved from the arithmetic mean. That is the closest the back of an envelope gets to your actual ending NAV ten years from now.
03
Avoid the deep hole. The climb out is non-linear.
A 20 pct drawdown asks for a 25 pct bounce. A 30 pct asks for 43 pct. A 50 pct asks for a full double to break even. That is why a low vol fund with a smaller average return often beats a high vol one with the same mean across a real ten year window. The hole is not symmetric. The chart is. The chart lies about how the rupee actually felt the drop.
Closer
You do not lose what you swing through. You lose what you stay below. The brochure prints the arithmetic. The bank account prints the geometric. The gap between them is the price of vol, paid in rupees you never see.