Market volatility is the amount of uncertainty or risk of changes in a security’s value over time. High volatility means its value can potentially be spread out over a large range of values; the price of the security can change dramatically, up or down, during a short time period.
The current market environment suggests high volatility for many types of securities. Is extreme market volatility here to stay?
Some areas of finance and investments have more to do with emotions than with numbers. The current volatility in the markets can be viewed as an emotionally-charged period of uncertainty, driving investors to quickly change their minds about whether they want to take risk or not (speculation).
It is easy to get caught up in this type of market action, and it can lead to trouble — by buying securities when they are high (because you feel the price will go higher) and selling them after they go down (because you lose confidence in your decision after seeing the latest negative headline).
During times like these, it is of utmost importance to have an investment plan in place. A good investment plan will include proper asset allocation, as well as an appropriate long-term time horizon. These are two important aspects of proper risk control and good investment management.
It is hard to know how long this extremely emotionally-charged period of uncertainly will last; however, it will likely pass. With history as a guide, we expect markets to move in cycles, and this present period should be viewed as part of a cycle.