Tag Archives: volatility


The Right and Wrong Reasons to Change Your Risk Tolerance

Our clients sometimes ask us how often they should change their risk tolerance score. The answer is: Not often. You won’t be surprised to find that the question comes up most frequently when the markets are either up big or down big. Human nature leads us to want to increase our risk tolerance when we experience an up market and decrease our risk tolerance in down markets. Like most everything in investing, what feels right seldom is. There are a few good reasons to change your risk tolerance but there are also bad reasons that you should learn to recognize and avoid. Good Reasons: Significant Financial Changes There are several significant events that can change your risk tolerance: A major […]

Invest Despite Volatility

Many facets of investing are counterintuitive. Investment strategies that feel right seldom are. A classic example of this is how to deal with market volatility. During a recent investment seminar I gave to Dropbox employees, I asked the audience which type of market they would prefer to invest in periodically each year if they didn’t intend to withdraw their money until 10 years from now. I showed them the three charts below and asked them to vote.           You probably won’t be surprised to learn that Behavior Chart A  was the vote’s biggest winner while Behavior Chart C  garnered the fewest votes. However, you may be surprised to discover that Behavior Chart C  actually displays the best […]

What To Do in a Falling Market

We ran an earlier version of this post on the Wealthfront blog in June 2013 after a turbulent run in the market.  For many, it’s hard to remember that June 2013 was a volatile month given how great 2013 turned out to be by the end of the year. Given the recent market volatility in September 2014, we thought an update of this post with fresh data would be valuable to our readers. The global equity markets have been increasingly turbulent over the past few weeks. The S&P 500 began September at over 2000, and proceeded to drop 2.9% through September to close at 1946.16 on October 1st. Small caps performed more poorly, with the Russell 2000 dropping 7.6% in the same […]

Automated Tax-Loss Harvesting by Wealthfront

Today, Wealthfront adds automated tax-loss harvesting to its suite of investment services, putting a benefit long used by the rich to reduce tax bills and maximize investment returns into the hands of typical Americans. Free tax-loss harvesting is another way Wealthfront is democratizing access to high-quality financial advice. Our research shows that automated tax-loss harvesting would have increased your after-tax returns by an average of more than 1% a year between 2000 and 2011. Over the next 20 years that could add more than $54,000 on a $100,000 portfolio. For more on how tax-loss harvesting works, here’s our video:   The Competitive Advantage The wealthy have always had a competitive advantage when it comes to the U.S. tax code: They […]

After The Year Of The Yo-Yo

After The Year Of The Yo-Yo

James Surowiecki wrote this week about the effect of the volatile market on investors. In a New Yorker article titled Year of the Yo-Yo, he said investors are abandoning the stock market after a year in which they were whipsawed by the volatility. This flight from stocks is probably not a good thing for people’s retirement accounts—after all, in a capitalist country owning some capital is usually a smart way to make money. But it may well be a good thing for investors’ psychological well-being. In effect, they’ve decided that, in a market as volatile as this one, the only way to win the game is simply not to play. But the research shows that the bowing out of the […]

Why Volatility Shouldn’t Keep You From Investing

To submit a question to Wealthfront, e-mail betsy@wealthfront.com. “I’m someone who has never invested in the market. This seems like a good time to invest, since the economy isn’t great, and I expect prices to be low. When I look at the stock market, though, it looks like it’s up and down almost every day. As a potential long-term investor, is this a good time to get in, or is the market too volatile right now?” – Thomas Fogarty, 30 You are not alone asking the question. In fact, very recently a friend of mine expressed exactly the same concern. Sitting in cash, he is concerned about a market that can easily swing by more than 3% in a single […]

Why Volatility Is The New Norm

So … how did that make you feel? This perennial question from your friendly head shrinker seems appropriate now as investors contemplate the recent weeks of chaos. Fortunately we have a technical measure to calibrate the level of our daily fears. I’m referring to the VIX. Since the VIX uses the pricing of near term options, not historical market moves, it is an estimate of future volatility of the S&P 500®, giving it a certain crystal ball attribute. In effect, it estimates how fearful or greedy we will be next month. To put some math behind it, a VIX of 50 is the annualized estimate percentage change in the S&P 500 within one standard deviation for the next 30 days. […]