When it comes to investing in stocks, riskier is not better. More accurately: Higher volatility does not equal higher rewards over time.
Unless you're deeply committed to short-term trading strategies, investing in stocks that move a lot over short periods of time can actually cost you in the long run, according to an article on Investmentnews.com, "Is modern portfolio theory bunk?"
From the story:
Veteran quantitative investment analyst and economist Robert Haugen studied every stock market in the world from 1990 to 2011 and found that the average return of the least volatile stocks outperformed the most volatile stocks by an average of 17 percentage points.
For U.S. equities, the study found that the least volatile 10 percent of stocks had an average return of 12.2 percent over the period, while the most volatile 10 percent combined for an average decline of 8.8 percent.
Investors swarming around high-octane growth stocks could have done better by sticking to the slightly more dull value stocks. While they would have foregone short-term bursts of gains, they would have also missed out on short-term drops as well.
Get more CD and Investing News with our free weekly newsletter.
Follow me on Twitter.