Over the course of a day, a month, or a year,
the price of your investments may fluctuate, sometimes dramatically.
This constant movement, known as
volatility,
varies from investment to investment, with some investments being
significantly more volatile than others.
For example, stock and stock mutual funds
tend to change price more quickly than most
fixed-income investments, such as bonds.
But it's not always that simple. The
price of stock in large, well-established companies — known
as
blue chips
— tend to change more slowly than stock in
smaller or newer companies.
Also, some low-rated, high-yield bonds fluctuate
in price as least as often as stocks, and offer some of the same
opportunities for gain — and for loss.
Volatility poses the biggest investment risk
in the short term. But if you can wait out downturns in the market,
chances are that the value of a diversified portfolio will rebound,
and you'll end up with a gain. If you look at the big picture,
you'll discover that what seems to be a huge drop in price
over the short term evens out over the long term. In fact, over
periods of 15 or 20 years or more, stocks — usually the most
volatile investments over the short term — have always increased
in value.
