Do Choppy Markets Keep You Up at Night? | The Informed Investor 7

Episode 7: You might say stock market volatility is like a deep-sea fishing trip: Sounds fun until the ride really gets choppy.

While the market was relatively calm in recent weeks, that wasn't true in the spring.

The S&P 500 Index notched returns of at least +1% or –1% on 12 out of 20 days in March, which was double the frequency of such returns over the past 30 years. Then, in early April, we saw down days of –4.8% and –6.0% followed by an up day of +9.5%.

That kind of volatility can leave many investors feeling queasy. Yet you might be surprised to know that it hardly approached the levels of volatility seen in market upheavals during COVID-19 and the Global Financial Crisis.

Should investors think about adjusting their asset allocation when the market undergoes big swings? Whether or not they choose to make a move, the data makes clear that volatility has not been a useful signal for future stock market returns.

While market volatility is never pleasant, it is a sign that market prices are responding to new information. Put another way, investors should expect volatility when new information is being processed by the market, especially if that information is largely unexpected.

Government policy updates, new economic forecasts, geopolitical developments, even headlines about widely followed companies all give markets plenty to absorb—and they all can lead to bouts of volatility.

In Episode 7 of The Informed Investor, Dimensional's Mark Gochnour, Wes Crill, and Jake DeKinder explain how to make sense of spikes in volatility and whether it's possible to prepare for big swings in the stock market.

LINKS FROM TODAY'S EPISODE:

The Informed Investor on YouTube https://www.youtube.com/playlist?list=PLCyJr6FFig-h1mA7rVP7Mbk0irFw2wA90

Mark Gochnour on LinkedIn https://www.linkedin.com/in/mark-gochnour-9a23598a/

Wes Crill on LinkedIn https://www.linkedin.com/in/wes-crill-77a49417/

Jake DeKinder on LinkedIn https://www.linkedin.com/in/jake-dekinder-cfa-4105b98/

Learn more at https://www.dimensional.com/