Perspective Advantages

Stock market volatility recently returned to normal levels after a few years of abnormally low volatility. It’s a good time to remind ourselves how to take advantage of this very natural dynamic of investing rather than be deceived by it. Here are five important reminders: 1.   Volatility is your friend. The very reason equity markets offer the possibility of higher returns than saving or investment vehicles with less perceived risk, such as U.S. Treasury Bonds or Certificates of Deposits (CDs), is the higher risk and greater volatility associated with such holdings. This is called the risk premium, something investors as a whole build into liquid, open, transparent financial markets every business day of the year around the world. For instance, the S&P 500, over the last 90 years returned about 10% per year.* However, there were very few individual years it actually returned that amount. The reality is that in 40 of the 90 years, the index was up more than 20% or down more than 20%. So, remember, the premium (return over less risky assets) you are seeking to receive in risk assets is precisely for accepting the bumpy ride associated with the investment vehicle. So long as you […]