By Scott Ronalds

It’s one thing to explain to investors that capital markets move in unpredictable ways and diversification can dampen a portfolio’s volatility in the short term, but it’s quite another to actually show them. Which is why we’ve built a Volatility Meter for our website (it was inspired by Vanguard's excellent volatility tool).

The tool shows the historical annual returns in bar graph format for key asset classes dating back to the 1960's. Users can select which asset class they want to view, adjust the breakdown between stocks and bonds, and alter the time horizon to see how diversification can affect a portfolio’s ups and downs.

Another feature of the meter is the ability to view logarithmic and linear growth charts that illustrate the cumulative growth of the portfolio over time.

Give it a go.