Market volatility: A threat or an opportunity for investors? | Stock Market News

Volatility is an unavoidable aspect of equity markets, yet it is often misunderstood. While volatility represents short-term fluctuations in stock prices, it is not synonymous with risk. Learning to navigate through periods of volatility can turn market unpredictability into a long-term opportunity for wealth creation.

Let’s explore volatility in detail, understand its causes, and how you can manage it effectively.

What Is volatility, and why is it inevitable?

Volatility refers to the rise and fall of stock prices over a short period. It’s intrinsic to equity as an asset class due to factors such as investor sentiment, global economic events, and corporate performance.

For instance, the Nifty 50 Total Return Index (TRI) grew at an annualised rate of 19.9% over the last five years (2019–2024). Despite this robust growth, the journey was marked by periods of sharp corrections and recoveries. These fluctuations, while unsettling, are temporary and highlight the need for a long-term perspective.

How stock prices move: The demand-supply dynamic

Stock prices are influenced by demand and supply in the market.

Volatility vs. risk: What’s the difference?

While often used interchangeably, volatility and risk are distinct concepts:

How to understand risk in investments

Asset class risk profiles

Different asset classes have unique risk profiles. Within equity itself, the risk varies across categories.

Conclusion

Volatility in equity markets is unavoidable but not something to fear. By understanding its causes and leveraging strategies like asset allocation, disciplined investing, and SIPs, you can turn volatility into an advantage.

Remember, the markets reward patience and discipline. Stick to your financial plan, focus on long-term goals, and avoid reacting to short-term noise. With the right mindset and strategies, you can navigate market volatility and achieve your financial aspirations.

(The author is Cofounder & Executive Director, Prime Wealth Finserv Pvt. Ltd.)

Disclaimer: The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.