While volatility may be troubling for investors, experts caution against any hasty selling when markets fall. In addition, slumping stock prices can be a prime buying opportunity that investors should take advantage of.
A bull market is the condition of a financial market in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities.
A bear market is a period of falling stock prices, typically by 20% or more. During this time, investor confidence is low, and investing can be risky. It is common knowledge among investors that a bull market is one in which stocks have gone up, and a bear market is one in which stocks have fallen.
Financial market volatility is defined as the rate at which the price of an asset rises, or falls, given a particular set of returns. It is often measured by looking at the standard deviation of annual returns over a set period of time. ... That is, when the volatility is high, the trading risks are higher and vice versa.
Financial planner Brad Lineberger, president of Carlsbad, California-based Seaside Wealth Management, which manages about $165 million in assets.
“Embrace the volatility, because it's why investors are getting paid to own stocks,” he said.
For example, when the average daily range in the S&P 500 is low (the first quartile 0 to 1%), the odds are high (about 70% monthly and 91% annually) that investors will enjoy gains of 1.5% monthly and 14.5% annually.
This is because when stocks fall from recent highs, they’re trading at a discount and will likely rebound at some point, which sets investors up for larger returns.
Continuing to put money in the market when it’s down as opposed to selling is a great way to make sure you don’t miss out on a rebound. Date shows that selling when the market goes down can take you out of the game for some of the strongest rebounds.
Regional and national economic factors, such as tax and interest rate policies, can significantly contribute to the directional change of the market and greatly influence volatility. For example, in many countries, when a central bank sets the short-term interest rates for overnight borrowing by banks, their stock markets react violently.
Changes in inflation trends, plus industry and sector factors, can also influence the long-term stock market trends and volatility. For example, a major weather event in a key oil-producing area can trigger increased oil prices, which in turn spikes the price of oil-related stocks.
Of course, even if you know that stock market volatility can benefit you in the long-run, financial advisors still recommend having an emergency cash fund on hand so that you can make it through a market meltdown without selling.
If the stock market falls, it's better to spend the money in your emergency fund than sell assets at a loss that can't be recouped, according to Tony Zabiegala, chief operations officer and senior wealth advisor at Strategic Wealth Partners, an Independence, Ohio -based firm with more than $500 million in assets under management.
Volatility, in end, is a "rapid fire" in grow money, but...is a very rapid "avalanche" for down and for burie the money too!
Risks - to law -is the rule to gain or lose.
