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Tom Meaglia, ChFC®, AEP®, CLU®, MSFS

Chartered Financial Consultant

Investment Advisor Representative

CA Insurance Lic. #0567507

 

Meaglia Financial Consulting

2105 Foothill Blvd., #B140, La Verne, CA 91750

 

Toll Free: 800-386-3700

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Email: tom@meagliafinancialconsulting.com

Website: www.meagliafinancialconsulting.com

January/February 2022

Risk and Volatility: Know the Difference

Risk and Volatility Know the Difference

You may think of volatility and risk as interchangeable terms, but they’re not. Picture volatility as a two-way thoroughfare. Just as a car on that road can go in either direction, the price of an investment can go up or down over time. That’s volatility.


Risk is a one-way street. It’s the possibility that an investment will decrease in value and its price will drop. So, while volatility encompasses both the upside and downside of changes in the price of a security, portfolio or market segment, risk refers only to the potential for an investment to lose money.


Another Way to View It
Volatility is an objective measure of an investment’s price fluctuations over a specific period. Volatility can be positive over the long term but risky in the short term.

Risk is subjective and personal. It’s different for every investor. Some investors believe they have a high tolerance for risk until they see their portfolio’s values drop.


Taming Risk and Volatility
Although taking some risk is necessary to earn returns that outpace inflation, there are strategies investors can use to cushion the impact.

Dollar-cost Averaging*
Investing a fixed amount of money on a regular basis — regardless of share price, allows you to purchase securities in a variety of market conditions and may result in a lower per-share price. If you invest through a 401(k) or other qualified retirement plan, you may already be using this strategy.

Diversification**
Spreading your portfolio among a variety of asset classes and investment styles may help to mitigate risk and make your portfolio less volatile. Your financial professional can help you choose appropriate investments.

*Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost, but this investment method will not guarantee a profit or protect you from a loss in declining markets. Effectiveness requires continuous investment, regardless of fluctuating prices. You should consider your ability to continue buying through periods of low prices.
**Diversification cannot eliminate the risk of investment losses. Past performance won’t guarantee future results. An investment in stocks or mutual funds can result in a loss of principal.


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Investment advisory services are offered through Fusion Capital Management, an SEC Registered Investment Advisor. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration is not an endorsement of the firm by the commission and does not mean that the advisor has attained a specific level of skill or ability. All investment strategies have the potential for profit or loss.
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