Financial Reference

We have gone from the best of times to the worst of times — at least in terms of volatility. The market, at least in terms of the Dow Jones Industrial Average, has seen 200-300 drops become common. However, for most of us, this news should be on page 9 instead of the front page.

For most of us, the recent volatility is a non-event. The market is still solidly higher in the last six months. And therefore we should be better off than we were six months ago.

However, volatility does hurt some investors. The following is a list of some people who may have been hurt:

(1) Investors with a weak stomach. If you are likely to sell based on volatility, volatility does indeed hurt.

(2) Investors with too much leverage. Think hedge fund investors who are being forced to redeem their investments as their prime brokers became more risk averse and their positions move against them.

(3) Investors with a cash crunch. If you need to access your portfolio for living expenses, you may have been forced to cash out some positions at inopportune times.

(4) Investors with short term goals. Many people who invest other people’s money fit into this category. Short term goals come at the expense of long term results. The past few months, hedge funds have been seeing record redemptions.

In the long run, the volatility we have recently been experiencing is a non-event. While it can be emotionally painful to see the price of your portfolio change so drastically, the volatility should not effect the value of most of our portfolios.