What The Media Gets Wrong About Market Volatility
Written by Justin Byram, CFP?, BFA?
We live in an age where the media is ubiquitous. With so many outlets, channels, websites, publications, talking heads, etc.—often competing against each other for the same audience—it can be hard to tell if the information you’re getting is the information you need.
In the investment world, one of the biggest things the media gets wrong is the concept of “volatility”—specifically, how you should?feel?about it. The media would have you believe market volatility is something to fear, but that’s not always the case. In fact, the opposite is often true. Those with long-term investment goals and well-thought-out financial plans should embrace periods of high market volatility.
To learn why, let's first review what market volatility really means.
What Is Volatility in the Stock Market?
In general, volatility is how fast and how unpredictably something changes. When referring to investment markets, volatility means how quickly and unpredictably the markets are liable to rise and fall.
Markets move every single day. Small fluctuations (often less than 1%) in either a positive or negative direction are expected daily. But in a volatile market, these price swings are much more dramatic. And the more volatile the market is, the greater and more sudden valuations will likely swing in either direction.
Is Market Volatility Something to Fear?
Volatility in investment markets can be unsettling. After all, the definition of a volatile market is that it is unpredictable. As investors, we like a stable environment. We understand there are risks involved with investing, but when we check index performance on our phones or computers, we much prefer the steady climb of a growing market because it leaves us with a sense of control. The less control we have over something, the more likely it is to leave us feeling uneasy—especially regarding our money...
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2 年"Volatility" is what we put up with to aim to get better gains over time. It is the "cost" of higher returns. We pay for that cost with patience and sticking to the plan over years and decades.