vendredi 26 janvier 2018

A Summary Of Low Volatility Investments

By Jeffrey Taylor


The target for every investor is to reduce his exposure to risk without reducing his returns. Low volatility investments are termed as a safe way to enter the stock market and avoid the fluctuations that eat into your investment. It has been termed by experts as a defensive approach to investment and was popularized by the global financial crisis that wiped out the wealth of many investors.

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 or LVP only minimizes the risk of market exposure and does not eliminate it. This is a trend that has been observed over the years. The reduction in risk means that you can earn more in the long run. However, this reduction is only dependent on market forces prevailing at the time. The long run remains unpredictable.

LVP stocks give lower returns. It is the reduced exposure that invites many investors into this segment. If an investor loves exposure to risk, there are better stocks with impressive returns. In fact, this is a confirmation of the principle that reduced risks bring lower returns while more risky investment produces better returns.

It is possible and easy to spot an LVP stock in the market because the characteristics are unique. The activities of the stock are usually hidden from public scrutiny because they are a bit dormant. This means that public opinion and daily market forces rarely have an impact on these activities. The investments made by parent companies are also long term. This is why short term market forces do not have an impact on the price.

LVP require massive investments in order to realize profits. Notably, the most common investors in LVP are institutions that seek to minimize exposure of their funds. They also know that they will get sure returns because these stocks are not volatile. They have the patience to wait for years before cashing in on such investment. In most cases, they are not interested in immediate returns.

Bullish trading also affects the less volatile stocks. This is a confirmation that the stocks are traded in an ordinary market. These stocks will respond to winds that favor certain stocks and not others. There will be moments of sharp fall and rises which gives investors time to buy and also sell. Such moments do not last long before a correction happens.

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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