PLANNING
Volatility explained
Volatility is the single biggest reason why people put their cash in building
societies rather than invest it.
The ups and downs of the stock market
simulate the feeling of aircraft turbulence. We
all prefer a nice smooth flight and naturally
dislike a bumpy ride.
The graph below shows five different funds that are
grouped by how risky they are.
1
2
The top line represents the riskiest and
most volatile and moves up and down
in the most pronounced way.
If you are prepared to take a longer term view and
have a more volatile journey, then you create the
potential for higher growth. The risk is that you
need to sell your investments at a time when they
may have fallen dramatically in value, potentially
causing a loss.
Key points
Bigger ups and bigger downs signify volatility
The line at the bottom represents the
least risky and least volatile. It does not fall
dramatically, but does not rise dramatically
either.
If taking risks keeps you awake at night, seek
out lower risk, less volatile investments
Performance
55%
50%
45%
1
40%
35%
30%
25%
20%
15%
2
10%
5%
0%
-5%
Aug 2012
Nov 2012
Feb 2013
May 2013
Aug 2013
Nov 2013
Feb 2014
May 2014
Aug 2014
Nov 2014
Feb 2015
May 2015
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