Even the most well-constructed portfolio will suffer if the investor makes bad choices. It is easy to stay the course when markets are steady, but many investors lose their nerve during periods of volatility or chase returns when they feel they’re missing out. One year of poor or exceptional results can cause uninformed investors to reevaluate their entire strategy. This can be exacerbated by misconceptions about average returns and sector rotation. If your strategy was constructed thoughtfully, with a focus on quality, direct ownership, and spreading risk, then you should think twice before making changes due to recent fluctuations. Annual Returns There are generally two types of portfolio returns: annual returns and annualized returns (or average annual returns). Not only are these measured differently, but misunderstandings about them often lure investors into bad investment behaviors which yield weak portfolio results. Let’s first look at annual returns. Annual returns are simply the 12-month result of the investment. If you had invested $1,000 with no contributions and no distributions, the annual returns describe how much your investment would grow in 12 months. Simply put, if your annual