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Make Sense Of Low Volatility Investments

By Jeffrey Taylor


Investors want to get the most out of their Investment without exposure to risk. Low Volatility Investments are a safe way to put money in stock markets without the risk of fluctuations that reduce the value of your investment leading to losses. This is a defensive way of investing that has been popularized by the recent global financial crisis.

It must be noted that this idea only exists in theory. This means that you cannot pinpoint a stock as being less volatile until it has been tested by the powers in the market. It is the level of exposure that determines whether a stock is volatile or not. Market forces might favor a stock today but expose it tomorrow. In fact, it is only over time that such investment is regarded as less volatile and not before.

LVP or low volatility portfolio does not eliminate the potential to make losses. It will only reduce the percentage or speed at which you make a loss. The trend of loss and profit is only calculated by observing years of trading. With reduced risk, your profits in the long run will be better. Short term market forces only lead to a bulge or slump after which a correction takes place. You are only saved from drastic losses but the future is still unpredictable.

LVP stocks give lower returns. It is the reduced exposure that invites many investors into this segment. If an investor loves exposure to risk, there are better stocks with impressive returns. In fact, this is a confirmation of the principle that reduced risks bring lower returns while more risky investment produces better returns.

LVP stocks are easy to identify in the market through specific characteristics of a formula. There are pointers that these stocks are exposed to lower risk. These stocks and their operations are rarely on news items because their operations are not too active. Participants also invest for long term gains instead of short term. This means that behavior can only be predicted with a long term view.

To get profits from LVP, your investment must be massive. This is simply explained by the reduced returns. This trend attracts institutional investors who do not want to lose funds belonging to members. Their returns are also guaranteed because of reduced volatility. These institutions also have the patience to wait for long term gains before cashing in on their investment. Their target is never to get immediate returns.

The less volatile investments also experience bullish trading moments. The stocks are not immune to market forces and will therefore respond when the winds favor the entire market. This also means that they can experience sharp falls like all other stocks in the market. This opens a window for short term investors to make a kill or the long term investors to cash in.

LVPs almost provide sure returns but their level of risk is greatly reduced. When the entire market is performing well, they will respond positively. When the market is on a downward spiral, they will also decline. The distinguishing factor is a margin that is slightly stable either during a rise or fall.




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