Wealth First explains why market ups and downs are not just normal but sometimes necessary for long-term growth.
Imagine two people at the beach — a surfer and a swimmer.
The swimmer looks for calm water: steady, predictable, and smooth. But the surfer? They thrive on waves. To them, each rise and fall in the water isn’t a disturbance; it’s an opportunity.
That difference captures the essence of volatility in investing.
What Is Volatility?
In finance, volatility refers to how much and how quickly prices move—both up and down—over a period of time. It’s a measure of uncertainty or fluctuation in an asset’s value.
Volatility doesn’t mean loss. It means movement. And just like waves, that movement is part of what creates progress.
Without waves, there’s no surfing. Without volatility, there’s no return.
Volatility in the Markets
Market volatility is caused by many factors, of which some are predictable, others are not:
- Economic data: inflation, GDP growth, interest rates.
- Global events: wars, elections, pandemics.
- Corporate performance: earnings, management decisions.
- Investor behaviour: fear, greed, and speculation.
These forces constantly push and pull the markets. Investors cannot control them, but they can control how they respond.
The Surfer’s Mindset
Just like the surfer adjusts their stance with every wave, investors must adapt emotionally and strategically during market fluctuations.
Those who panic and abandon their long-term plan often “wipe out.” But those who stay calm, balanced, and focused on the bigger picture eventually reach the shore stronger.
The skill is not in avoiding waves, but in learning how to ride them.
A Realistic Example
Consider two investors who start an SIP of ₹10,000 per month for 15 years:
- Investor A panics during downturns and stops SIPs whenever the market falls.
- Investor B stays invested, continuing through the highs and lows.
By the end, Investor B’s discipline allows compounding and rupee-cost averaging to work their magic, thereby potentially resulting in a portfolio 20–30% higher than Investor A’s. That’s the cost of fear and the reward of patience.
Why Volatility Is Necessary
Volatility may feel uncomfortable to many, but it’s what gives markets their life.
- It creates opportunities to buy at lower prices.
- It allows long-term investors to accumulate wealth as prices recover.
- It reminds us that markets are driven by real human behaviour and therefore, emotions.
Without volatility, there would be no incentive for higher returns for market participants.
How to Manage Volatility
- Know your risk tolerance – Understand how much fluctuation you can endure emotionally and financially.
- Follow asset allocation – Diversify across equities, debt, and other assets to balance risk.
- Stick to your plan – Avoid emotional decisions during short-term turbulence.
- Stay invested – Time in the market beats timing the market.
As we discussed in our Risk Tolerance and Asset Allocation articles, the key to long-term success isn’t avoiding volatility but staying prepared for it.
Lessons from the Sea
Every sailor knows that calm seas rarely make skilled navigators. Similarly, investors grow wiser only through periods of uncertainty.
Market volatility teaches patience, perspective, and perseverance. Thesequalities are far more valuable than any short-term gain.
Key Takeaways
- Volatility is movement, not danger and it is a natural part of markets.
- Learn to ride the waves, not fight them.
- Your risk tolerance and asset allocation define how well you navigate ups and downs.
- Staying invested through volatility is what builds real wealth over time.
Disclaimer
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