Volatility

Volatility is a measure of how the price of an asset – be it a stock, an option or a fund - changes. Volatility tracks how much the price moves and also how fast it changes. Beta is a commonly used statistical measure that represents volatility, and the higher beta is, the greater the risk. There’s usually a reference index such as the S&P 500 and if a stock perfectly tracks the index, it is said to have a beta of 1.0. If it changes more than the index, be it on the up or downside, it is a high beta stock. For example, a stock with a beta of 1.5 means that historically, it has moved 150% for every 100% move in the benchmark index. Mutual funds nowadays provide free volatility measures so you can get a good feel for how stable the fund is year in and year out.

Notes from the CFA Institute Fixed Income Conference

The CFA Institute just held its 2012 fixed income conference in San Francisco.

Speakers shared a very broad range of perspectives on fixed income issues over the course of about a dozen sessions.

Session notes and observations (in no particular order) include:

Demographics and Deleveraging -- Rick Rieder, Blackrock

The Best Idea in Light of Demographic and Fiscal Challenges -- Scott Simon, PIMCO

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Questioning the Need for Bonds in Retirement

Conventional financial wisdom says that bonds should comprise an increasing percentage of a portfolio as the owner ages and heads into retirement.

In theory, a retiree’s need for income and a reduced tolerance for risk are the main drivers of the larger allocation to bonds.

A key consideration, though, is...

No Time for Guarantees

The concept is seductive: a financial product that provides upside exposure in the event that equity markets trend up and to the right while also providing a floor of protection in case the bottom falls-out from under markets again.

Sort of like having your cake and eating it too. Very tempting in light of the massive financial uncertainty that has existed for the past several years.

Products playing into this “upside plus protection” theme include (but are not limited to) variable annuities with guaranteed...

Lack of Dividends Make Equity Indexed Annuities a Tough Sell

Dividends contributed five percent of the 7.9 percent total return from stocks over the 200 year period from 1802 through 2002.

Dividend paying stocks in the S&P 500 produced an average return of 8.92 percent since 1972.  Over that same roughly 40 year period, non-dividend paying stocks in the same index returned 1.83 percent.

Most equity indexed annuities only count market price gains in their reference index when crediting...

Key Phrases Autotag: 

What is Driving the Rush for the Variable Annuity Exit?

The...

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