Analyzing The Risk Of Stocks After The 6.9% Drop

The stock market snapped a six-day losing streak on Friday, with the Standard & Poor's 500 closing at 2767.13.

Price volatility is a key way of measuring the risk of owning stocks, especially since the most volatile days are losing days. While one-day spikes are frightening losses, the 30-day average price moves along much more smoothly. Trouble is, when you are in the middle of a red-line period, it's hard to focus on the black line. It's often hard to believe that prices historically smooth over, over longer periods and there is a good chance of that happening again.

In fact, this is why investors get paid a premium for the risk of owning stocks versus other less volatile alternatives. Over the decades, stocks historically returned about 10% annually. Nothing ever is guaranteed in investing but that's about 6% more annually than the return on a 30-day U.S. Treasury-backed fixed income investment. That equity risk premium was awarded to investors for putting up with the volatility of stocks.

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This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.

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