Risk & Volatility

Anyone who follows the news headlines heard about the dramatic drop in the stock market yesterday. Although it was followed by a significant recovery, there was a point yesterday where the Dow Jones Industrial Average was down almost 1,000 points. What caused this to happen and what does it mean about the risk of investing in the stock market?

There is speculation about the exact cause of yesterday's volatility, but it was most likely caused by a combination of global economic uncertainty, computerized trading programs and human trading actions. All of these factors confirm that investing in equities does carry risk and this risk becomes more apparent when uncertainty exists. Our world economy has become more volatile and uncertain in recent times and the changes in the market show this.

Despite the volatility, developing a well-diversified, long-term investment portfolio is still the way to achieve returns that stay ahead of inflation and to build real wealth over a long period of time. Recent events confirm the need to have a well-thought-out financial plan and appropriate investments which support the risk this financial plan allows. Having a plan like this in place allows the short-term emotion of the markets to be viewed as "noise" and the long-term goals remain the primary concern.