What's the difference between market volatility and risk?
Smooth sailing isn’t a term anyone would use to describe 2022. So far, it has been a remarkably volatile year. On more than half of the days during the second quarter of 2022, the U.S. stock market moved up or down by 1 percent or more. “The quarter had 10 days where the market moved 2% or more compared to a median of two days between 2019 and 2021,” reported Lauren Solberg of Morningstar.
While volatility is not the same as risk, the chances of incurring a loss may increase during periods of market volatility, in large part, that’s because investors become anxious about falling share prices and sell when they might be better off holding. See what you know about the difference between risk and volatility by taking this brief quiz.
1. What is market volatility?
a. Asset prices rising over a period of time.
b. Asset prices falling over a period of time.
c. The frequency and size of asset price swings, higher and lower.
d. A measure of how easy it is to buy and sell stock.
2. What is risk?
a. The chance of losing some or all of an investment.
b. The chance that actual investment returns will be different from anticipated investment returns.
c. A vulnerability that can be managed through asset allocation and diversification.
d. All of the above.
3. How can the effects of stock market volatility be limited?
a. By timing the market
b. By avoiding bonds
c. Through asset allocation and investment diversification
d. By avoiding stocks
4. Which famous investor said, “When people are desperately trying to sell, I buy. When people are desperately trying to buy, I sell. It has worked out very well over the years.”
a. Warren Buffett
b. Abby Joseph Cohen
c. Sir John Templeton
d. Abigail Johnson
If you’re feeling overwhelmed and uncertain in this volatile market environment, give us a call. One of the most important services we offer is helping people stay calm and make sound decisions during difficult times.
Answers: 1) c; 2) d; 3) c; 4) c