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Volatility Risk

Volatility Risk

March 10, 2020

Hi. This is Doug Pardieck with Talon Wealth Strategies. I am creating a library of educational videos on the general topic of investing and financial planning. My mission is to strengthen my community and families by helping folks make excellent financial decisions. One way I do this is through education. Below you will find my most recent educational video. This is a very timely topic considering what’s going on with the Coronavirus and the increase in market volatility. Thank you so much for taking the time to watch it and contact me when I can be of service.


Hi, I am Doug Pardieck and thank you for taking the time to watch this video titled: Volatility Risk.

When it comes to building wealth for retirement and your legacy, there are several risks that must be addressed. They are 1) Longevity Risk. 2) Inflation Risk. 3) The risk of high healthcare expenses. 4) Taxation Risk. This video will focus on the 5th risk: Volatility Risk.

When saving and building wealth, we all want our money to grow. We want $1000 to turn into $2000. And the $2,000 to turn into $4,000. And so on. So, where do you invest to get your money to grow? The stock market. However to get high returns, you must be willing to accept volatility risk. This is the price you must pay to potentially get high returns, potentially doubling your money every 7-10 years.

(show the slide: Average annualized returns 1937-2017)

From 1937-2017 the S&P 500 obtained a 10.4% annualized return. With such a high rate of return, $$ invested in the S&P 500 would have doubled in a little less than 7 years. However, the S&P 500 has volatility. The value of the S&P 500 frequently experiences significant drops.

This next slide shows up the annual returns for the S&P 500 beginning in 1980. You will see a dark grey bar indicating the final return for each year. During this entire period of time, the average annual return was 8.4%. But in 2009 the S&P finished up 23%. However, there is another number. A red -28 which measures the biggest decline during the year of 2009. During all 40 years, the avg intra year decline is a whopping 13.9%.

Today, the DJIA is around 29,000. A 13.9% drop, which is the 40 yr avg, would equate to a drop in the DJIA of over 4,000 points! This would be average, normal, and something to expect.

One effective solution I use with many of my clients is to separate your wealth into different buckets. The money in the 3rdbucket will likely have the best growth over time, but will be impacted by volatility. A way to mitigage this risk is my have some of your money in Bucket 1 with no stock market exposure, and some in bucket 2. Bucket 2 is designed to be more stable and have less volatility, while still giving you higher than inflation like returns.

To learn more about how we can build your financial plan to mitigate the 5 big risks, please don’t hesitate to give us a call. Or, if you’d like to see other videos like this one, check us out at