Volatility (risk) doesn’t seem to bother most Investors during bull markets. This is one of the reasons Investors are “lulled” into taking on additional risk as markets rise. The collapse of the credit and housing markets and the resultant damage to investments should cause everybody to pay more attention to risk.
Studies show that investments with lower volatility (risk) tend to produce lower returns. This causes Investor seeking high rates of returns to concentrate on higher risk stocks. Riskier stocks tend to be smaller and fundamentally weaker than the average stock. These more speculative stocks tend to lead the market up during rallies, but collapse in down markets.
Investors need to realize there are appropriate times to take on more risk and appropriate times to be more conservative. Instead of a Buy and Hold Strategy, Investors should employ an Active Asset Allocation Strategy that takes into account economic cycles and the current risk environment in the equity markets.
Suggested Reading: “Is Buy and Hold a Viable Strategy” www.blog.ArborInvestmentPlanner.com/is-buy-and-hold-a-viable-strategy
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