Understanding Volatility

[bob999]

Hi Guys,

Hypothetical situation:

Lets say I have $100 invested in the S&P500 which is tracking at 2800 points. What would happen if the index dropped to 1400 points in a day and then recovered back to 2800 points the next day. Will my $100 investment drop to $50 and then go back up $100?

Same situation again, but this time it takes a year to for S&P500 to go back up to 2800 points . Will my $100 investment go to $50 then recover back up to $100+dividends?

thanks
 

[Proud Foot]

Yes that is correct. For information on volatility you can look here.

[Sibley]

Just don't sell, that will lock in gain/loss.

[bob999]

Yes that is correct. For information on volatility you can look here.

Thanks.

[chasesfish]

Your spot on, toughest thing about buying the market is you have to see it reprice daily.

I joke with people who love rental houses because they're "less volatile" - I remind them they're just as volatile in pricing if you had to auction it off daily, they just don't have to see that auction value each day.

[Reynolds531]

Your spot on, toughest thing about buying the market is you have to see it reprice daily.




I joke with people who love rental houses because they're "less volatile" - I remind them they're just as volatile in pricing if you had to auction it off daily, they just don't have to see that auction value each day.

Here in Canada our houses only go UP in value. -sarcasm off-

[bob999]

Your spot on, toughest thing about buying the market is you have to see it reprice daily.




I joke with people who love rental houses because they're "less volatile" - I remind them they're just as volatile in pricing if you had to auction it off daily, they just don't have to see that auction value each day.

Here in Canada our houses only go UP in value. -sarcasm off-

Same here in Australia...lol

[maizefolk]

Yup, no problem there.

The one you have to look out for when it comes to volatility is if you have $100 in the S&P, the market drops 50% one year, grows 75% the next year.

You've made an average annual return of 12.5%/year over the two year period, but your $100 investment has "grown" to $87.50 (actually a $12.50 loss)