Volatility is the major risk of investing in quality shares… but over the long term it becomes less important

SFG-MC-Bucket-SharesAll shares and managed share funds experience volatility. Their values all go up and down – on a daily basis. That’s because shares are easily traded on the stock exchange. You can buy and sell shares almost whenever you want.

The trade-off for that liquidity and convenience is a bumpy share price.

However, with quality shares (and managed share funds) you’ll notice that over time their prices tend to go up more than they go down (see Chart 2).

And the magnitude of the price rises are generally greater than the price falls, as shown in Chart 1 of bull markets and bear markets.
As a result, over time your quality shares should generate solid capital growth.

In fact the longer you hold your shares or managed funds the less likely you will have a negative return, as you can see in Chart 3.

Note: Investors who redeem their investments after a fall in value turn a notional loss into a permanent loss.

If they are high quality investments, this is usually a poor decision, because high quality investments should recover from falls in value.