Understanding Market Volatility
The recent markets have been incredibly volatile from the COVID pandemic, inflation news, rising interest rates and, most recently, the war in Ukraine. Stock market volatility is a measure of how much the stock market's overall value fluctuates up and down. Beyond the market as a whole, individual stocks can be considered volatile as well. More specifically, you can calculate volatility by looking at how much an asset's price varies from its average price as compared to the S&P 500. Standard deviation is the statistical measure commonly used to represent volatility.
The below information can be found at https://www.fool.com/investing/how-to-invest/stocks/stock-market-volatility/
"Measuring stock market volatility
For individual stocks, volatility is often encapsulated in a metric called beta. Beta measures a stock's historical volatility relative to the S&P 500 index.
A beta of more than one indicates that a stock has historically moved more than the S&P 500. For example, a stock with a beta of 1.2 could be expected to rise by 1.2% on average if the S&P rises by 1%. On the other hand, a beta of less than one implies a stock that is less reactive to overall market moves. And, finally, a negative beta (which is quite rare) tells investors that a stock tends to move in the opposite direction from the S&P 500.
For the entire stock market, the Chicago Board Options Exchange (CBOE) Volatility Index, known as the VIX, is a measure of the expected volatility over the next 30 days. The number itself isn't terribly important, and the actual calculation of the VIX is quite complex. However, it's important for investors to know that the VIX is often referred to as the market's "fear gauge." If the VIX rises significantly, investors could be worried about massive stock price movements in the days and weeks ahead.
Why is volatility important?
By understanding how volatility works, you can put yourself in a better position to understand the current stock market conditions as a whole, analyze the risk involved with any particular security, and construct a stock portfolio that is a great fit for your growth objectives and risk tolerance.
It's important to note, though, that volatility and risk are not the same thing. For stock traders who look to buy low and sell high every trading day, volatility and risk are deeply intertwined. Volatility also matters for those who may need to sell their stocks soon, such as those close to retirement. But for long-term investors who tend to hold stocks for many years, the day-to-day movements of those stocks hardly matters at all. Volatility is just noise when you allow your investments to compound long into the future.
Long-term investing still involves risks, but those risks are related to being wrong about a company's growth prospects or paying too high a price for that growth -- not volatility. Still, stock market volatility is an important concept with which all investors should be familiar.”
Strategies for dealing with market volatility
Understand what market volatility really is (and means).
Invest regularly — in good and bad times.
Focus on time in the market (not market timing) i.e., avoid jumping in and out of the market.
Maintain/rebalance your diversified portfolio.
Don't forget history.
The right move could be nothing at all.
Consult with your financial professional.
Call us at Client First Capital. Our portfolios are based on a combination of your risk tolerance as determined by the financial planning process and by our grid framework to meet your needs. Through this framework we have done a great job at managing downside risk. If you would like an evaluation of your portfolio, please contact us.
