We have seen some stock market volatility in the recent weeks. Some people are wondering just how much volatility is happening, what is causing it, and what does it mean to the average investor?
News 3’s financial resource, Carl Carlson CEO & founder of Carlson Financial, broke these questions down.
Two measures of volatility are, daily changes over a sustained period and the VIX.
Carlson said when the stock market rises and falls more than 1% a day over a sustained period, it is considered a volatile market. This has been happening for some time now. Anything over 20 is considered high.
The VIX is a number that measures options trading for the upcoming 30 days. In the last year, the VIX has been as low as 15 in July this year and as high as 40 last October and lately has been trending up and running in the 20-25 range, Carlson added.
Uncertainty is causing the volatility, according to Carlson.
Uncertainty can be influenced by interest rates, tax changes, inflation rates and other monetary policies, but it is also affected by unemployment rates, industry changes and national and global events. One of the most obvious factors currently is inflation driven by monetary policy.
The uncertainty of possibly very large amounts of government spending, printing money and borrowing and what the impact of that will be on our national economy both short term and long term.
Carlson said it’s not as much the volatility that affects the average investor but rather what may be causing it and how that effects the economy over time. Economic changes affect the price of stocks and therefore the growth of our investment portfolios.
It can also affect the value of our money and what it will purchase over time. The worst impact of volatility is when people must sell their investments in retirement to pay their bills and if the market is down substantially it can dramatically affect their ability to stay retired.
One way to protect against this is proper financial planning and investment allocating.