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Getting Reacquainted With Risk (Part 1)

After a long period of relative calm in the markets, it's a good time to reassess risk.

Ben Johnson 21.06.2018

Do you remember what risk feels like? While the market has hit a pothole or two during the current bull run, the ride has generally been smooth. Many--myself included--probably have a hard time remembering just how nerve-wracking the last bear market was.

Below, I've included a plot of the trailing three-year standard deviation of the S&P 500 from March 1939 through the end of April 2018. At present, this measure of stock market volatility has been trending below its long-term average for 68 months. This marks the third-longest stretch of below-average volatility for the index dating back to 1939. The next-longest period lasted 75 months, from March 1956 through May 1962. So the current streak is unprecedented in the experience of most investors.

Are you ready for when volatility rears its ugly head again? Here, I'll help you get reacquainted with risk: defining it and discussing how it's measured, how investors experience it, and how they can try to manage it.

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About Author

Ben Johnson  Ben Johnson, CFA is the Director of Passive Fund Research with Morningstar.

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