Why do we need volatility for returns?

Key Takeaways

“Without volatility there is no performance.”

Marc, why do investors need volatility to make money?

In order for any investor to buy low and sell high, either with individual stocks or on a portfolio basis, the market needs to move, and it does that because the economy grows, and as the economy grows, the value embedded in the market also grows. What's really important is that the market moves around and adjusts to different economic factors and also adjusts to microeconomic factors pertaining to individual companies. In order for investors to be able to buy a stock at one level and to sell a stock at a hopefully higher level, you need to have that up and down movement. If there were no expectation of a stock changing in value over a period of time, there'd be no obvious entry and exit points, and it would show up as having negligible return overall. But it is important for stocks to be able to move and respond to the environment and the underlying businesses that they represent so that investors can generate returns.

Robert, how does volatility pertain more specifically to growth and value stocks?

Portfolio Impact Of Return Highs And Lows

Growth funds have done twice as well as value funds on a cumulative basis. Going back to 1958, if you examine the disparity of returns year in and year out, growth funds go up more in up markets, and they go down more in down markets. Value funds go up less in up markets, but they lose less in down markets. But the benefit of the volatility is that going up more means going up much more in up markets, which more than compensates for going down more in down markets.

To receive more information, contact us here.

This transcript was generated by software and may not accurately reflect exactly what was said.

Please note, that the thoughts expressed in this podcast are those of the presenter. This is not, nor should it be considered an offer or a solicitation of an offer for investment.

Back >>

Why do we need volatility for returns?

download (PDF)
Back >>