![]() ![]() While it is a useful tool, it can’t tell you about how volatile markets will be moving forward, just what has happened in the past. And don’t forget, standard deviation is inherently backward looking. So, both 20 were well above the median but with wildly different results. Over that same period, the median standard deviation was 12.5%. But that includes some outliers and steeply volatile years, which can skew the average. The S&P 500’s annualized standard deviation from 1926 through 2017 was 15.2%. Though you may not believe it, these rebound years can sometimes be more volatile than the big down years before them. In many cases, those bad years are followed by positive subsequent rebounds. 2009 was more volatile-although just by a hair.īig down stock market years can hurt and leave a lasting effect on the psyche of many investors. So which year do you think was more volatile? 2008 or 2009? Most people wrongly assume stocks were more volatile in 2008. Lower standard deviations mean the results didn’t vary much, and higher ones mean there was more variability. ![]() Standard deviation is a measure of how much a statistic deviates from its average. Volatility (both positive and negative) can be measured by the standard deviation of returns. Like so many things, volatility cuts both ways and you generally won’t hear much handwringing when it cuts to the upside. It’s normal! And higher volatility isn’t necessarily a bad thing. Markets go through periods of high and low volatility regularly. 2017 was a somewhat steady year, but 2018 was more erratic. Since 2008 we have had a handful of scary corrections, including a big one between 20. For example, 2008-2009 was a volatile period for stocks, but the recent past has been volatile, too. During periods of heightened stock market volatility, some investors believe “this time around is worse than before.” Sometimes that’s true. ![]()
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January 2023
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