Make 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 bottom line is that low volatile investment is only theoretical. It is impossible to pick a stock with certainty until market forces are applied on it over time. Until market forces act on a stock, it can never be marked as less volatile. Stock markets depend on seasons to determine their performance. This means that labeling one as less volatile at the beginning of trading can lead to natural market correction later.

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.

When the market is bullish, LVP will also be affected. This indicates that the investment is still in a normal market. Trading winds still affect the stocks. However, the falls are only sharp and bulges slight with correction helping to restore the value of these stocks.

The sure returns guaranteed by LVP are the reason most investors go for the stocks. If the entire market is performing well, these stocks will also perform well. When the performance is poor, the LVP will also experience a downward spiral. The only saving grace with these stocks is their long term stability that almost assures investors of profits, albeit at a reduced rate.




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