We all make investments with the hope that the value of the investment would increase in future thereby generating profit at the time of selling them. As the aim of any investment is to earn some returns in future, there is a risk attached to these investments. The general notion is that investments with a higher degree of risk have the potential to deliver higher returns.
The investment market is a free market and hence the value of your investments keeps going up and down as the market keeps churning. This, in financial parlance, is called volatility. Volatility is the most natural phenomenon with regards to investments and the degree of volatility for each investment is different and some assets tend to be more volatile than the others. High volatility may imply a higher degree of risk for your investment but also provide the opportunity for potentially higher returns. While some investors are able to accept volatility, there are many others who are uncomfortable with high volatility and tend to avoid investing in highly volatile investments.
But, is it possible to get high returns by investing in less volatile assets? Especially when the inflation rate is very high and the post-tax return on fixed income instruments is very low.
Honestly, your investments in assets with little or no volatility are unlikely to meet your expectations and if you wish to reach all your financial goals well within the desired time frame, then you have to invest in volatile assets, such as equities.
Investments in equities are most volatile when compared to any other asset class, but in the long-run, the returns generated by equities have achieved returns more than that generated by all the other asset classes, repeatedly.
Moreover, investments are a part of a long-term financial planning and as investors with a long-term horizon, your investments should be unmoved by the short-term volatility as this is of no significance when you look at the long-term. Instead, you should concentrate on building a well-diversified portfolio as per your unique investment requirements so as to achieve your goals.
Here are Top #6 things you should keep in mind with respect to market volatility:
All investments are done with a purpose to earn profits but there is no guarantee on the quantum of profit that your investment would make. However, if you wish to achieve high returns and have done your financial planning with a focus on long-term wealth creation then you must remember that volatility for some investments is very high but with a long-term perspective, this volatility is irrelevant.
Individual investors engage in stock market activity for a variety of reasons, e.g., long-term gains, short-term gratification, experiencing daily highs/lows, learning, applying intellectual strategies, etc. Their approaches to achieving these objectives can be broadly classified as active or passive in terms of the time spent analyzing the markets and their frequency of transactions. Let’s understand […]
7 Common Investing Mistakes That Can Reduce Your Returns from the Market Investing is an exciting experience. But it can also overwhelm people, especially those who are starting afresh. By their very nature, stock markets go up and down – disciplined investors understand this, and develop strategies to reduce their risks during market lows (as […]