Some History of Volatility and Market Returns

I received a great e-mail today from Fidelity Canada who just put the finishing touches on an interactive charting tool that helps put volatility and bear markets into great perspective. I highly recommend you check it out. After playing with the various calculators and tools, you will be more able to put the recent market volatility into perspective and stick to your long-term game plan.

The site has 4 individual tools:

Market Crises

In this exercise you can pick between Canadian, US or Global stocks and see how these markets reacted to, and how long these markets took to recover, from certain market shocks like 9/11, or the 1987 Stock Market Crash. Click here to view

Timing The Market

This is a great tool that shows how badly your performance is affected by missing out on only a few days of being in the markets. You can choose from 6 different markets and see how your performance would’ve dropped if you had missed 10, 20, 30, or 40 of the best days on those markets during the 5.5 year period. For example in the US, if you missed only the best 10 days on the market over the time period, you gave up 35% of value in your portfolio. The point is that no-one can pick these days in advance, so just stay invested. Click here to view

Stock Picking

Although I didn’t find this particular tool to be as valuable as the others, it does show the dichotomy of returns of the 10 best stocks versus the 10 worst stocks versus the market averages for various markets over various years. Personally, I took from this that it is better to have a well diversified portfolio since it’s very hard to pick which stocks will be the winners and which will be the losers. Click here to view

Unpredictable Returns

I really like this tool. It allows you to pick from 6 different markets and give you the best and worst annualized performance for that market over different lengths of time periods. For example, you can look at the Canadian market and select “2 year time periods”. It will then provide the best 2 year annualized return the Canadian market ever had (over the last 52 years) and the worst 2 year annualized return the Canadian market ever had. In this case, the TSX had a 2 year annualized return as high as 54.6% between February 1978 to February 1980, and a 2 year annualized return as low as -22.2% between August 2000 and August 2002.

It might be a good exercise to see how long you need in each market before there were no negative returns. For example, in the Canadian market you have to increase the time period to 7 years before you eliminate a negative annualized return. How do the other markets compare? Click here to try

All in all, this is a great site for people to explore and play with – especially if it helps them to understand the nature of volatility and to stay the course.

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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