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Eileen M. Carrero, CPA
Financial Advisor, CPA
Eileen Carrero Financial Services, LLC
Wealth Management, Tax & Accounting
4917 West 144th Place
Midlothian, IL 60445
Phone: 708-489-1035
Fax: 708-489-1036
Email: eileen.carrero@ceterafs.com
Website: www.myecfs.com
September/October 2025
Risk And Volatility: Know the Difference
You may think of volatility and risk as interchangeable terms, but they're not. Picture volatility as a two-way thoroughfare. Just as a car on that road can go in either direction, the price of an investment can go up or down over time. That's volatility. Risk is a one-way street. It's the possibility that an investment will decrease in value and its price will drop. So, while volatility encompasses both the upside and downside of changes in the price of a security, portfolio or market segment, risk refers only to the potential for an investment to lose money.
Another Way to View It
Volatility is an objective measure of an investment's price fluctuations over a specific period. Volatility can be positive over the long term but risky in the short term.
Risk is subjective and personal. It's different for every investor. Some investors believe they have a high tolerance for risk until they see their portfolio's values drop.
Taming Risk and Volatility
Although taking some risk is necessary to earn returns that outpace inflation, there are strategies investors can use to cushion the impact.Asset Allocation and Diversification
Start by defining your goals — short and long term — and determine your level of comfort with market risk. Then invest in asset classes that perform accordingly. For example, if your goal is long-term growth and you are comfortable with a certain level of risk you may invest more funds in stocks. To help reduce the impact of market swings, diversify your investments within each asset class.Dollar-cost Averaging
Investing a fixed amount of money on a regular basis — regardless of share price, allows you to purchase securities in a variety of market conditions and may result in a lower per-share price. If you invest through a 401(k) or other qualified retirement plan, you may already be using this strategy. Understand that it is not possible to guarantee future results or guarantee against loss of principal. Your financial professional can provide guidance.
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