We tend to think about the things in life that we are thankful for as Thanksgiving Day approaches. I always start with the fact that I am thankful for my clients, my team and my firm. I am also thankful for volatility. While it may sound strange at first, there are three main reasons why volatility can work in our favor.
1. Potentially Higher Returns
Volatility is sometimes the reason that we get higher returns. The long-term return of stocks has proven to be higher than bonds or cash. If we look at returns since 1926, we can see that stocks returned 10.2%. During that time bonds returned 5.5% and cash returned 2.9%. Cash today returns around 1.8%. It can pay to stay invested in stocks over time, even if we have to stomach a little volatility in the short term. Volatility is the price of higher returns.
Volatility is what creates opportunities in the market. Although I don’t believe recent volatility has created great opportunities yet, I’m certain there are great companies selling at lower prices today than six weeks ago. Volatility creates opportunities for investors.
If you’re still saving and contributing to your investments, volatility can be your friend. What may seem like bad times for the market are actually great opportunities to buy at lower prices. If you are living off your assets in retirement, volatility works against you. However, as long as you take an appropriate amount of risk and stick to the long-term plan, volatility does not have to be the enemy.
Bottom Line: While volatility may be hard to weather (that’s a hidden joke because we thought it was never going to stop raining in Charlotte earlier this month), it’s the reason we are where we are today. As we celebrate Thanksgiving, I encourage you to reflect on the things that you’re thankful for. I am thankful for the opportunity to do a job I genuinely love for people I care about.