Reducing Volatility…Not Returns
In a concentrated portfolio, market volatility can be very pronounced. However, when investors “diversify” their holdings and invest for the long term, they can offset this volatility without significantly reducing returns. As shown in the chart, in any one-year period, the returns of the S&P/TSX Composite Index have been as high as 86.9% and as low as –39.2%; a range of over 126%. This is extreme volatility. However, if investors extend their time horizon, this volatility decreases significantly. For example, in any ten-year period the returns of the S&P/TSX have been as high as 19.5% and as low as 2.8%; a range of only 16.7%. This volatility is offset even further with a more diversified portfolio as shown.
Feel free to contact me or visit my website for more information.
Douglas J. Bodtcher
Investors Group Financial Services Inc.
780-448-1988 ext. 284
Douglas.Bodtcher@investorsgroup.com
Tags: money tips, Tips
