A Focus on Volatility: The Price of Growth
By Bob Barber
Over the past few years, stocks and bonds have seen a tremendous amount of day-to-day and month-to-month volatility. Volatility is the price an investor has to be willing to pay if they want long term growth, but many investors don’t realize, or forget this, when they actually experience volatility in their portfolio. Typically over time, the lower the volatility, the lower the return, and the higher the volatility, the higher the return.
We are now, once again, in a time of extreme volatility. One month your statement shows your account value is up, the next month it shows the value is down. Sometimes, this volatility can go on for several years. In the early 1970’s, the markets did this for 4-5 years before rallying for the next 7-8 years. I have a chart in my office showing all the different markets over 90 years and the many times the markets have gone sideways for 3-4 years in a row. I’m glad I get to look at this chart daily to remind me that what we are experiencing today is normal according to long term history. Those who threw in the towel during a sideways trend have always missed out on a following major rally in the markets for the next 4-5 years or longer.
Control What You Can, Especially Your Emotions
For many, with volatility comes stress. One of the ways to control your emotions during volatile markets is by working with volatility instead of against it! When markets are down, look at it as a buying opportunity just like you do when something goes “on sale” at the local department store. In a sideways market like we have been experiencing for some time now, this is a great opportunity to accumulate as many shares of good companies’ stocks as you can while they are flat or down. Then, when the markets rally someday, you will have bought at lower prices.
This is exactly the strategy Warren Buffett has been using for years, and he is one of the wealthiest men in the world. If you watch him, he always buys stocks during major dips when everyone else is following their emotions and getting out.
* Past performance is no guarantee of future results.
Click below to read other articles from the Christian Financial Advisors July 2016 Newsletter
Family and Money
Online Security
The Brexit Vote
The views expressed represent the opinion of Christian Financial Advisors®. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Christian Financial Advisors® believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Past performance is not indicative of future results. For any discussion of equity securities: Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. For any discussion of taxes: Christian Financial Advisors® does not provide tax advice and encourages you to seek guidance from a tax professional.