The Benefits of Low-Volatility Equities in Diversified Portfolios

Volatility in the stock market is totally unavoidable, and this fact puts many people off of investing at all. Luckily, there are low volatility equities, and your portfolio should include some of them. Depending on your temperament, you may be ok with more volatility than someone else may be. It’s a risk vs. reward kind of thing, and only you can decide what’s right for you. If you’re a bit of a gambler, you may prefer the higher potential payoff that often comes with high volatility stocks despite the possibility of greater losses. But if you’re not the type to gamble and you prefer as much stability as possible, then low volatility stocks, particularly those that pay dividends, can be a great investment and should perhaps even make up the majority of your portfolio.

The Upside of Low Volatility

Low volatility stocks are a great source of investment if you just want returns on your portfolio to exceed those of bond portfolios. Investment management firms in Ontario will often suggest these stocks, particularly those that pay dividends, if you say that you’re not looking for speculative stocks and prefer a slow and steady payout. You will rarely see a massive payout on one of these stocks, but as experienced investment management firms in Ontario will tell you, it’s still important to have them in your portfolio for that steady growth. There’s no shame in going with the lower risk option, and it’s often the smarter decision.

A large portion of your portfolio could be made up of these types of stocks to generate returns including dividend income and to preserve your capital should something unexpectedly negative happen in the markets. Just be sure that you’re aware that even though the prices of these stocks have low volatility over time, they could exhibit big swings in the short term. Don’t be alarmed by these changes, and just stick to your guns set out by your investment policy statement as part of your investment management services.

The disciplined firm providing your investment management services will know which of these stocks are likely to be stable over time and will advise you that volatility, including stock price declines, in the short term is nothing to be alarmed about.

Are There Any Downsides?

Any reputable institutional investment management services firm will tell you that there are potential downsides to these kinds of investments, but even they are mostly subjective, as their significance depends on your tolerance for risk. If you’re the ‘go big or go home’ type of person, then you may want to invest in fewer of these stocks because they’re less likely to experience huge up or down swings. If you perceive securities as an opportunity to gamble you may want to purchase higher volatility stocks that are more likely to experience large price shifts.

Make sure that you know what kind of investing you want to experience before you get involved. Your institutional investment management services provider will consult with you to help you determine which stocks are right for you. If you want to know more, reach out to us at Enriched Investing Incorporated to learn how low volatility stocks can work for you. Check out our website to learn more.

Get a Free Consultation
Get a Free Consultation X