Tanner’s Tips – Volatility

Tanner’s Tips comprises of a father and daughter team, an unstoppable duo fighting apathy in the world of finance.
tanner's tips volatility

This week we are discussing volatility.   When you invest, you must have the stomach for volatility.   If you do not, it would be like getting on a roller coaster if you were terrified.   You must be able to ride the roller coaster until the end.   If you were to panic and jump off, the result would be disastrous, similar to investing.   Investments can be volatile, this means that they can go up and down, even daily.   If you panic and “jump off the roller coaster” by cashing in, you will not recover your losses.  However, if you ride out the investment until it stabilizes, your investment is likely to recover.   If you cannot stomach downturns, and you are likely to panic and encash your investment when the market dips, you really should stay away from investments of this nature.   Stick with deposits and settle for lower returns.   The real risk with volatility is panic, or a need for the capital while it is at a loss.

If we take the 2008 crash for example, the majority of investments have fully recovered since.   If you were to encash your investment at that time you would have suffered a massive loss, and if you had switched your investment to deposits, you would still be down a considerable amount of money now.   However, if you had waited it out, you would be in a far better position at this stage.

Next week we will discuss the varying levels of risk in investing.

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