Making Sense Of Low Volatility Investments

By Jeffrey Taylor


Investors want to get the most out of their investment without exposure to risk. Low Volatility Investments are a safe way to put money in stock markets without the risk of fluctuations that reduce the value of your investment leading to losses. This is a defensive way of investing that has been popularized by the recent global financial crisis.

The truth is that this category of investment only exists in theory. One cannot visit the market and point with surety at a stock and claim that it is less volatile. Only time determines the performance of all stocks and their yields. Market forces also act on perceived less volatile stocks, leading to fluctuations. It may perform one during one season and poorly during another. The time you buy your stock may also be unfavorable.

Low volatility portfolio label is not a guarantee that you will not make losses. The unique factor is that these losses and the chances of making such losses are less than for other stocks. It takes years to mark a stock as less volatile. The stocks will still experience moments of bulging and slumps. This means that short term observation will return erroneous results. The stocks only protect you from the drastic gains and losses experience in other portfolios.

LVP stocks will definitely produce lower returns. The basic market principle is that risky investment always produces incredible returns while less risky investment will give impressive profits. The reduced exposure to risk means that your returns will also be reduced. You must be aware of this scenario when making your application.

There is a formula to LVP. The formula that leads to reduction in risk involves the participation of very few players in the stock. Such stock is also not in limelight because it is considered insignificant. Its participation in the market is also on long term basis. This means that every day activities rarely affect its returns. In this light, it is possible to predict the behavior of such a stock over time.

To get profits from LVP, your investment must be massive. This is simply explained by the reduced returns. This trend attracts institutional investors who do not want to lose funds belonging to members. Their returns are also guaranteed because of reduced volatility. These institutions also have the patience to wait for long term gains before cashing in on their investment. Their target is never to get immediate returns.

The less volatile investments also experience bullish trading moments. The stocks are not immune to market forces and will therefore respond when the winds favor the entire market. This also means that they can experience sharp falls like all other stocks in the market. This opens a window for short term investors to make a kill or the long term investors to cash in.

LVPs have an almost sure return, the attractive factor about these stocks. When the markets are performing well, the stocks also appreciate. If the entire market is experiencing poor performance, the stocks also fall in value. The only guarantee you get by investing in these stocks is long term stability which will preserve your value in the long term.




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