This post, so close to the end of the academic year, begins a new series focused on words that every undergraduate should know from the realms of business and economics. I’ve covered one before, amortize, but that’s rarely a concept needed in one’s 20s.
So I’ve asked faculty and professionals for words that they feel every undergrad needs. Kristopher Olexy, of Capitol Financial Solutions, recommended this term and another I will cover here soon.
Why begin with volatility now? We live in volatile times. You’ll find a good entry on the term at the OED, yet it does not capture Mr. Olexy’s sense of market volatility. He means rapid and unpredictable movements of the stock markets. As a long-term investor I don’t tend to panic with the DOW drops, but many ups and downs in he broader S&P 500 can give me the jitters.
So what does “market volatility” mean? I turn to an investment source for beginners, from Fidelity International:
when a market or security experiences periods of unpredictable, and sometimes sharp, price movements.
People often think about volatility only when prices fall, however volatility can also refer to sudden price rises too.
Let’s see how the S&P has done over the past year, using data from Bloomberg’s free market charts: year-to-date return? Down more than 12%!
Should I panic? When I look at the one-year return, there’s an increase of 1.32%, not enough to outpace inflation but rosier than that big drop. And the five-year return? Nearly 92%. Now I feel good.
So has the past year been one of market volatility? If so, why?
It looks volatile. If you’ve not been under a rock, factors driving volatility include the war in Ukraine, the lingering pandemic, associated supply-chain and labor shortages, political turmoil in the United States, energy prices. All these variables, the Fidelity site notes, increase volatility.
While I’d rather live in boring times, we have to play the market we have, as investors large or small. My students recently expressed their love for crypto-currencies, an investment vehicle I would not touch with your money. But they are young and can take a greater risk on a very volatile market for crypto. I won’t. Stocks can be unsettling enough.
Aside from that, what should a college student know about market volatility? Not panicking at a first drop in prices is one. Volatility is normal, within reason. It’s also good to accept more of it when young, because too few grads start investing early enough (I did not until my 30s). Imagine putting a few hundred away in one’s 20s, each month, and seeing that blossom into hundreds of thousands by retirement, in addition to other investing and despite volatility.
So I tell college grads not “plastics,” the mantra from the coming-of-age film The Graduate. I tell them to “start investing now. Volatility is okay at 20. At 60, you might lose sleep over it.”
Do you have a word or metaphor for this blog? Send them to me by e-mail (jessid -at- richmond -dot- edu) or leaving a comment below.
Image courtesy of Pixabay