Volatility: up down up down up down
Volatility definition: the property of changing rapidly
Volatility is what drives the stock market; it changes. As it changes, opportunities exist to make money, whether betting on a movement up or a movement down of the market. All that is needed to make the stock market work is volatility, and what drives volatility?
Information is almost any form that can affect the volatility of the stock market. Information from a confidential source can be precious to the right investor, which is known as insider trading. Insider trading is illegal. (except in the US Congress where it was once allowed.)
Information through legal channels drives the stock market, as an example something a minor as a remark from the President that he says he doesn’t like broccoli, farm stocks could decline. If an earnings report is higher than expected, stocks could increase, or the estimate of a bad earnings report could have an adverse effect. It is all about information.
But, it is a very private and exclusive club, the stock exchange. The stock exchange appears to be open and available to everyone, but sadly it is not. It is the vast playground for money making for only a few, the few who own board seats on the exchange and are the quickest to act on any new information.
Why? Simple, they are in first place to make the market move. By the time we as small investors hear the news, it is well after the fact, after all, we are busy working at our jobs and are not close to the actual action. By the time we hear anything of value, positions have already been taken and taken by the big boys, those closest to the action.
How do we, as small investors, even invest in the stock market? There are many ways I suppose, but taking a long term look at the investment is the only way it makes sense. Buying individual stocks is also a waste of time generally. Buying groups of stocks can make sense, but then why not just buy the market? You can do that (almost).
You can buy the S/P 500 Stock Index (Standard and Poor’s 500 Stock Index), which is 500 American stocks spread over all segments of the American economy. Just buy the American economy, and then as America grows or falls, so do you. Many mutual funds mimic precisely how the S/P performs, holding the same stocks in the same percentages. Merely look for one with the lowers fees charged to maximize your returns.
What happens when the market is in a downward movement due to volatility just when you would like your money to be available for retirement?
How do you protect yourself against that possibility?
Base your retirement decisions on your period to retirement, if you are 30, invest in the S/P 500 and bet on America. As you age, you merely reallocate from the stock market to more guarantees by using a Fixed Indexed Annuity. Shield yourself from the downside and yet continue with some upside. You eliminate any chance of losing your long term funds.
Sound too good to be true? Well, they say the devils in the details, so do your research, start by watching this video, and understanding how a Fixed Indexed Annuity (FIA) works.