Risk vs. volatility: Why the words we use when we talk about investing plans matter
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- Risk assessment questionnaires aim to gauge investor comfort with risk for asset allocation decisions.
- Anita Bruinsma argues that investors should focus on volatility rather than risk, noting that risk has a negative connotation.
- Historical data show that every 10‑year period since 1949 yielded positive returns for Canadian stocks, and the S&P 500 posted similar long‑term gains except a brief dip in the 2000s.
- Long‑term charts reveal that while daily stock movements are volatile, the overall trend over extended periods is upward, supporting the notion that volatility, not risk, is the primary concern.
- Clients become more comfortable investing in stocks when advisors emphasize volatility rather than risk.
Why it matters: Financial advisors can increase client equity exposure, potentially raising portfolio returns, by reframing risk as volatility, which makes investors more willing to hold stocks over the long term.
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