Personal Wealth Management / Expert Commentary

Fisher Investments Reviews How Investors Should Approach Stock Market Volatility

Fisher Investments' Senior Vice President of Research, Aaron Anderson, reviews how stocks may be volatile in the short term but provide predictability and growth for investors in the long run.

Stocks and bonds are almost the opposite of each other. Bonds are less volatile in the short run, which helps to reduce the ups and downs of a portfolio; however, this may come at the cost of solid growth over extended periods compared to stocks.

In Anderson's view, volatility itself can be volatile—therefore, a mild bear market in 2022 followed by a strong rebound in 2023 should not be a cause for concern. Fisher Investments believes that this period of high volatility is nothing abnormal compared to what a savvy investor might expect from stocks. 


Aaron Anderson:

Volatility itself is volatile. Sometimes, you go through smooth patches in the market, Sometimes, you get more volatile patches. I wouldn't say what we've seen here recently is abnormal at all for the stock market.

Stocks are inherently volatile, at least in the short term. I mean, I think one of the most compelling things about stocks for people with long-term growth goals is, yes, absolutely, they can be volatile in the short term; and you're right, we've seen a fair amount of that here recently; but they become much less so over the long term, meaning that the farther out you go, the longer your time horizon, the more consistent stock returns become.

I mean, it's almost the opposite of what you see in bonds. Bonds tend to be less volatile in the short term, although you go back to 2022 and there are some exceptions to that. But generally speaking, what a bond does is it provides some lower short-term volatility, which can reduce an overall portfolio's volatility. But they don't give you a lot of growth potential over the long term.

Stocks in some ways are the opposite: they're a lot more volatile in the short term, and we've seen a fair amount of that volatility recently, but over the long term they become a lot more predictable. No matter when you start, when you start looking at ten years and 15 years and 20 years, the range of outcomes for stocks narrows quite a bit.

So, you kind of get to have your cake and eat it, too, a little bit. And then you get the long-term growth of stocks and you actually get pretty predictable outcomes. But that doesn't mean that they're not unsettling sometimes with that volatility in the short term. Now, another thing I'll say is that volatility itself is volatile. You know, sometimes you go through smooth patches in the market, sometimes you get more volatile patches.

I wouldn't say what we've seen here recently is abnormal at all for the stock market. As we mentioned stocks are inherently volatile. Yes, we've been through a period where we had a mild bear market in 2022. We had a strong rebound from that in 2023. Those tend to be some of the more volatile times in the market. But then, you can extend that back to 2020. And we had a lot of volatility, especially earlier in the year.

So, there have been some bouts of fairly high volatility here, but it's nothing to us that looks abnormal relative to what you expect out of stocks. As we said a few times already, that volatility is just inherent in what stocks do. And so, I wouldn't look back on this recent time and say, "boy, something's really changed in the market; it's not behaving how it normally does. It's something to be worried about."

All the volatility we've seen here recently hasn't been particularly extreme. It's been high but not extreme. But most importantly it hasn't been abnormal. There's nothing about what we're seeing here recently that says stocks aren't just doing what they ought to be doing, which is a little bit of volatility in the short term, still nice growth in the long term with greater predictability the further you go out.

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