Volatility Does Not Equal Risk

Jun 2019

Although stock returns and inflation have both fluctuated considerably over time, the year-to-year differences in stock returns— volatility—have been larger. This volatility/bumpy ride sometimes leads investors to conclude that investing in stocks for the long term is risky, but—as with air travel—the risk is more one of perception than reality. If you want to invest for 2,000 days, the outlook for good returns in stocks is relatively high (i.e., risk is comparatively low), even while day-to-day and month-to-month volatility may be high. In a nutshell, risk and volatility are simply not the same thing.