Several weeks ago Standard & Poor’s released a report that volatility in the S&P500 index was at a 70 year high.  The report states that the number of significant daily market moves, defined as days with a greater than 1 percent change in the index, has soared since summer 2007. 

The first half of 2007 saw only 12.9% significant daily market moves.  The second half of 2007 rose to 38.6%.  During the first few months of 2008 the percentage of days with significant market movement has risen to 51.9%.

It’s Great to be a Long-Term Investor

When I see reports of increased volatility it reinforces my reasons for being a long-term investor.  Short-term volatility is not a concern for people that hold diversified portfolios over long time periods. 

I plan to hold a diversified portfolio for the next 20 years, plus 10 more years after that.  And then maybe another 10 years after that.  The kind of short-term volatility described in the S&P report does not cause me any concern. 

I Like Volatility

Not only do I feel no concern over the S&P report, I actually like the report.  I love to see volatility!  Volatility helps me achieve a better return.  I have adopted an investing strategy that follows long-term upward trends, and it does better when there is volatility along the way. 

Also, higher volatility tends to push some investors away from stocks and toward safer investments, like CD’s or money market accounts.  As those investors flee stocks there are better returns for those of us that stick it out. 

If you’re academically inclined, you may find the following Wikipedia pages interesting:

Securities Market Line

Capital Asset Pricing Model

Modern Portfolio Theory.