In our view market volatility, often viewed with concern, should be understood objectively by investors. Volatility, in its simplest form, is measured as the standard deviation of returns, indicates how much returns on a particular stock or index deviate from the average, whether higher or lower. Other more advanced volatility measures include Beta, reflectinga stock's movement relative to the market, and the VIX Index, derived from S&P 500 options prices to gauge expected 30-day volatility
While high volatility can lead to portfolio losses, it also offers potential for significant gains. Historically, many of the highest return individual market days occur during bear markets when high volatility is present, as 7 of the best 10 days of the S&P 500 since 2000 have happened during such times and missing these days can severely impact long-term returns due to the loss of compounding benefits(1)
This chart displays the one day returns of the S&P 500 since 2000. As displayed, some of the highest upward moves occurred in the tailwinds of the Tech Bubble popping in the early 2000’s, the 2008 Financial Crisis and the Covid market shock.
When persistent downward volatility exists, it can create opportunities to buy undervalued securities, rebalance portfolios, and utilize tax-loss harvesting. In our view, investors should maintain a long-term perspective during volatile periods. Despite recent fluctuations, the S&P 500 was still up ~9% year-to-date by end of the first week of August 2024, which doesn’t make as sensational of headlines compared to headlines highlighting the markets very recent downturns.
We believe in a proactive investment plan that prepares the investor for periods of high volatility instead of being reactive to sometimes unpredictable market forces is crucial for investors to meet their goals.
- – Accroding to analysis done by Pippa Stevens of CNBC - https://www.cnbc.com/2021/03/24/this-chart-shows-why-investors-should-never-try-to-time-the-stock-market.html
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