What is the difference between volatility and risk?
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Volatility and risk are different concepts, but both have a role in determining your investment success.
Volatility is simply how much the market will increase or decrease, whereas risk is the amount of loss or gain you are willing to accept. How volatile your investments behave is often derived by the level of risk you are willing to accept. During periods of market volatility, it is important to stay focused on your asset allocation goals according to your predetermined risk profile.
Volatility is simply short-term instability that can affect all stocks, including good stocks or good equity funds, because of fear generated in the markets. The Euro-debt fears in 2012 are a good example of this. When markets are down, even a company that provides a useful, durable product may be affected. When the market calms, however, the company’s stock price may rise again.
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