The Mysteries of Volatility and Risk
By Karl Steiner
I don’t often write about “volatility” here at Mindfully Investing because mindful investors focus on long-term returns more than the routine ups and downs of the markets. The standard deviation of return sequences is the most common measure of routine volatility for stocks, bonds, and other asset classes. But as I explained in a previous post, standard deviation is actually a poor measure of the potential for a
permanent loss, which is the risk that matters most to real-life investors. A permanent loss is when your invested money is not available at the time you expected to spend it, such as when retirement begins.
Ranking The Historical Returns of Asset Classes
By Karl Steiner
In January of 2019 and 2020, I published year-in-review posts on the returns performance of various asset classes. But I have to say, I found those posts distinctly unsatisfying. For example, in 2020, U.S. large-cap growth stocks were the best performer of any asset class with a remarkable total annual return of 40%. The next best performers, were U.S. small-cap growth stocks (35%), mid-cap growth stocks (34%), U.S. micro-cap stocks (25.5%), gold (25%), and the total U.S. stock market (21%).
But is this information useful? Because mindful investors are long-term investors, I certainly wouldn’t replace my moderately diversified all-stock portfolio with concentrated bets on U.S. growth stocks or gold because of last year’s results. On the contrary, mindful investors know that the relative performance of asset classes will almost always ebb and flow over time. And history has shown that chasing the
By Riley Cooper, guest contributor
–The recent stock market meltdown seen during February and March has left investors a bit discomforted amid the possibility of seeing the value of their holdings evaporate in a matter of weeks when markets face unforeseen circumstances like the pandemic.
Although this is not the first time that such a strong downturn in market valuations occur, it is definitely a warning signal that has led to some cautiousness among the most conservative investors in regards to how they can hedge against these black swan events.
Although nobody can really predict what is going to happen in the future and how those events will affect the financial markets, there are certain ways in which investors can limit the amount of losses they take.