Why is volatility of investment assets bad?

Here are some samples of recent price movements of the Alphabet share (GOOG).

• Between 28-Aug-2020 and 25-Sep-2020, the price of GOOG fell from $82.22 to $72.25. That’s a fall of 12.13% in 29 days.
• 2022 was particularly volatile.
• Between 25-Mar-2022 and 29-Apr-2022, the share price fell from $141.52 to $114.97. A fall of 18.76% in 36 days.
• In the next 50 days, it fell 6.18% further to reach the price of $107.87 on 17-Jun-2022.
• In the next 57 days, the price rose by 13.70% to $122.65 on 12-Aug-2022.
• In the next 85 days, the price fell again to $86.70—a fall of 29.31%.
• Between 5-Jul-2024 and 6-Sep-2024, the price fell from $191.96 to $152.13. A fall of 20.75% in 27 days.

I used to not worry about volatility. If the price anyway appreciates after a fall, I used to think, just wait for the price to go up. Why try to reduce or avoid volatility? That’s how I used to think, but experience has changed my stance.

I hold some Alphabet shares (GOOG). Twice in my life, I have wanted to sell these shares for important and time sensitive needs. Both times, GOOG had fallen badly. Once I sold the shares at a low price; the other time I had to arrange money through different means.

Volatility is bad if you expect to use the asset. If you need to sell a volatile asset in the next few months, you have no idea what price you will get. If you pledge a volatile asset to take a loan, you have no idea when the margin will be too low and you may need to sell the asset at a low price.

But someone who doesn’t really need to use the asset has no reason to worry about volatility.

In practical terms, the advice may boil down to this:

• Sell your volatile assets much before you need the cash. For individual company stocks, having a runway of a few years will (hopefully) give you enough opportunities to sell the stocks in batches to accumulate cash.
• Having a clear idea of how much money you need for consumption—your life goals such as retirement, children’s education, etc—can be very helpful. You need a strategy to manage volatility of the money you need. The money that you don’t need can be held as volatile assets without a worry.