During the 90s many investors embraced risk. Stocks and stock-based mutual funds were chosen over other forms of saving and investment vehicles. However, the investor of the new millennium has thus far attempted to avoid risk. Fear of market volatility has become synonymous with risk.

The key to successful investing is to understand that your time frame has a direct impact on the amount of perceived risk that is taken. Short-term market volatility should not be confused with investment risk unless you will need the money in the very near future. In fact, history suggests, the longer you hold an investment the less volatile that investment becomes.

A study was conducted between December 31, 1973 and June 30, 2003. The study looked at the variability of returns over one, three, five, ten and twenty year periods. As expected, the S&P/TSX Composite index showed the highest variance over the one-year time frame, from minus 40% to positive 80%. This variance shrinks to about minus 2% to positive 25% over the five-year periods and positive 5% to positive 20% on the ten-year periods. Clearly, the more time given to an investment, the lower the volatility.

There have been several significant market declines over the past 30 years. The size and duration of each decline was different, however there was one common characteristic. The declines eventually ended and the market went on to new highs. It is important to note that the S&P/TSX Composite index did reach a low point last October 2002. Since then the index is up over 20%.

We are not suggesting that everyone throw caution to the wind and begin to invest in stock-based mutual funds immediately, but rather we are suggesting that there may be an opportunity that you won’t want to miss. Understand that time is an important consideration when evaluating the risk associated with your investments. Today may be one of the best times to invest your money for long-term growth that we have seen in many years.

This is a monthly article on financial planning. Call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of Fundex Investments with your topics of interest at 798-2421 or E-mail at rick@invested-interest.ca.