drlove said:
Personally, I think index funds are too volatile, since their performance hinges on the index itself - they do whatever it does. Even though you may not like mutuals, they are not a bad investment in my opinion. I invested in aggresive resource funds. Even though you may experience some loss, a couple of good years will more than offset it. You should come out ahead that way.
need4greed: Please seek the guidance of a professional investment advisor. Too many do-it-yourself investors throw around terms that they don't really understand and create more confusion. I've quoted drlove as an example but I could have quoted any number of posts thus far in this thread.
Volatility is a very popular term that is thrown around rather carelessly yet it's not a very useful concept for the individual investor. Volatility is a relative term and is usually represented by the statistical measure of standard deviation. In general terms it is the measure of how much the return on your investment differs (deviates) from that of a suitable benchmark, in most cases an index. For volatility to be useful, you need to be comparing apples to apples such as a mid to large cap Canadian equity fund and the TSX or a small cap equity fund and the Nesbitt Burns 400. If you are investing in an index fund then the returns you experience should deviate verry little from those of the index the Fund is attempting to replicate less management fees (usually 0.50%). As a result, the volatility of an index fund is actually quite low as measured by standard deviation, but this doesn't mean you don't have a risky investment.
Risk is a concept that few investors give much thought to, and in particular, risk of loss. From an investment standpoint, risk is primarily a function of your time horizon...do you have enough time to ride out potential downturns in your investment. Your appetite for risk should factor in how much you value a good night's sleep and how long you have before you need the money. Most investments are ranked based on a risk reward scale...the more risk you take, the higher the expected return to compensate for that risk. On the risk/reward scale
aggressive resource funds rank up there pretty high on the scale, but if you can handle the potential down years, you may be handsomely rewarded at some point (probably the only statement in drlove's post I agree with).
Volatility can be msileading for most investors because no one really thinks about volatility until returns are negative. However, you can have very volatile investments that are positing positive numbers. Most don't worry about that volatility until the numbers turn negative and there is a risk of loosing some capital.
Please understand the terms properly before throwing them around and when selecting investments, choose them based on your own personal needs, risk tollerance, time horizon and financial situation.