Volatility Explained for Belgian Investors

📅 Last updated: 8 May 2026
 ·  🏷 Topic: Volatility, standard deviation, risk
 ·  🇧🇪 For: Belgian investors

Volatility is how strongly the price of an investment moves around its average. High volatility = large ups and downs. Low volatility = more stable.

The maths

Standard deviation of return = how much the annual return deviates on average from the long-term average.

What this means in practice

With an average annual return of 7% and volatility of 17%:

• 68% of years: return between -10% and +24% (one standard deviation).
• 95% of years: return between -27% and +41% (two standard deviations).
• Outside this range: exceptional years (2008, 2020).

So: a world index ETF can easily deviate 10-20% from the “expected” 7% in an average year.

Volatility ≠ return

Important distinction:

• Volatility = size of swings.
• Drawdown = actual loss from peak to trough.
• Return = what you actually pocket over a period.

High volatility can be good (strong rises, with some drops) or bad (everything negative).

How to use volatility in decision-making

For risk tolerance:
– Anyone who cannot emotionally bear a 30% drawdown should not be 100% in a product with 17% volatility.
– 60/40 (equities/bonds) typically has volatility of 9-12% — less painful in bad years.

For portfolio construction:
– Mixing a 15% volatile world index ETF + 5% volatile bond ETF gives ~10% portfolio volatility (thanks to decorrelation).

For horizon:
– At a 1-year horizon: volatility assesses risk of loss.
– At a 30-year horizon: volatility over a single year matters less — the compounding effect drowns out the swings.

Maximum drawdown — a more practical measure

For many people, maximum drawdown (largest peak-to-trough loss in a period) is more intuitive than standard deviation:

Question: can you emotionally bear a 50% drawdown for 12-24 months without panic-selling?

The “sleep” test

A good rule of thumb: choose an allocation where you still sleep well in a 30% drawdown. If you then think “I have to get out”, the allocation is too aggressive for you.

💡 Real risk tolerance only becomes apparent during an actual crash. Until then, every estimate is hypothetical. Therefore, start more conservatively than you estimate you can handle.

🔗 See Determining your risk profile(NL) for the broader risk assessment.

What volatility means in practice

A standard deviation says little until you convert it into euros. On a €50,000 global equity portfolio, a 20% fall — historically not an exceptional event — is a €10,000 paper loss. The question is not whether that happens, but whether you stay invested when it does.

That is why the useful measure is not volatility but drawdown: how deep it went, and how long recovery took. Volatility measures movement in both directions; drawdown measures the only thing that actually makes investors sell.

Why panic-selling costs more in Belgium

Selling into a fall does more than lock in the loss. Since 1 January 2026 two further effects apply:

• The sale is a taxable event. Stock-exchange tax is due on sale regardless of profit or loss — 0.12% to 1.32% depending on the fund. You pay to get out.
• Loss offset is limited. Realised losses offset realised gains only within the same calendar year. Sell at a loss in December and recover in March, and the loss falls in a different year from the later gain.

Buying back later incurs stock-exchange tax again. The round trip out and back therefore costs transaction tax twice, plus the risk of missing the recovery.

Making volatility manageable

1. Match the horizon to the portfolio, not the other way round. Money needed within three years does not belong in equities.
2. Keep an emergency fund outside the market, so a fall never coincides with a forced sale.
3. Decide in advance what you do at −30%. A rule written down in calm conditions survives better than a judgement made in panic.
4. Rebalance with new contributions rather than sales — avoiding both the stock-exchange tax and a taxable gain.

Sources

1. Wikifin — Volatility and risk
2. MSCI / FTSE — Index volatility data
3. SPIVA Europe — Long-term performance metrics

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