What is one potential consequence of ignoring volatility in investment decisions?

The potential consequence of ignoring volatility in investment decisions is that investors may incorrectly assess the level of risk associated with the investment. Volatility is a measure of how much the price of an asset fluctuates over time. When investors overlook this aspect, they can underestimate the actual risk involved in holding a particular investment.

For instance, an asset with a high volatility might experience significant price swings, which can result in substantial gains or losses. If investors do not take these fluctuations into account, they may believe that the investment is safer or more stable than it truly is, leading to poor decision-making. Proper assessment of risk requires an understanding of both the potential returns and the volatility of those returns, making it essential for sound investment strategies.

The other options do not accurately reflect a consequence of ignoring volatility. While underestimating potential returns could happen due to a lack of analysis, it is more directly related to misunderstanding risk. Guaranteeing positive gains overlooks the inherent uncertainty in investing, and increased confidence in stability can lead to complacency, which is typically unwarranted when volatility is factored in.