This is an excellent article from Edgepoint Wealth Management (www.edgepointwealth.com) that explains the difference between volatility and risk, two concepts that are often viewed as interchangeable. Edgepoint states that the volatility of a company’s stock price should not necessarily be equated with risk. They argue that a company’s stock price and stock prices in general, may be influenced more by emotion than by rational thought. Volatility in the stock does not necessarily reflect the business risks that the company is facing. Likewise, a company with a steady stock price may have serious internal and/or competitive issues. There is a fundamental need to understand the company.
For us at Lifetime Financial, this is why we invest in quality mutual funds. We are hiring managers who understand the difference between risk and volatility and can find the companies that will perform over the long term despite the fluctuations of the stock price.