The Wealth Room

Tolerating Volatility

Tolerating or taking control of volatility in your investment

Every investment has varying degrees of volatility over the period of the investment. Understanding your investment goal (time that you have to invest and what return you need to achieve during that investment) can reduce or manage the amount of volatility that you would need to take in any give investment.

The best way to control volatility is by understanding the risk that is attached to each investment and then investing in that specific investment for the appropriate amount of time, to make sure that over that period you get a positive return and not a possible negative return.

For example, if you have 10 years to invest for a specific goal, you have plenty of time for the investment to give you a positive return. However on the other hand, if you only have 3 years to invest to achieve a specific goal, it will most probably not be the best idea to invest in an investment that has a high risk attached to it (like an equity fund). So with an investment that has a short time horizon or investment period you want to try invest into an investment with more stability.

All Video Clips and Pictures Supplied by Allan Gray