Defining Volatility for Clients

What does volatility mean to you? Most investors will immediately mentally picture a chart with sharp up and down lines. Violent downturns and sharp upturns with seemingly no rhyme or reason? The charts below offer a tale of two portfolios—the S&P 500 Index and a Diversified Portfolio.

Quick Take: Over the last 20+ years, intra-year market volatility has been dramatic, but much less dramatic through the balanced approach of a diversified portfolio.

Source: FactSet, S&P Dow Jones Indices. Data calculated from December 31, 1998-June 30, 2023 using total return. The indices are unmanaged, are not available for investment, and do not incur expenses. Click here for index definitions. Past performance is no guarantee of future results.

Diversified Portfolio Allocation: Investment Grade Bonds (IG Bonds): 32%, Municipals (Munis): 5%, U.S. High Yield Bonds (US HYB): 5%, U.S. Large Cap Equity: (US LC): 23%, U.S. Small Cap Equity (USSC): 10%, Foreign Developed Equity (For Dev): 10%, International Small Cap (Intl SC): 5%, Emerging Markets (EM): 5%, U.S. Real Estate (REITs): 5%. Alternatives are 5% of this allocation in most other representations of the diversified portfolio in this brochure. However, daily data is not available for the HFRI Index, so it is omitted from this chart. Click here for representative indices and definitions.

Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal. Diversification does not guarantee a profit or protect against a loss in declining markets.

Investments in debt securities are subject to credit and interest rate risk. An increase in interest rates typically causes the value of bonds and other fixed income securities to fall.

Investments in international securities are subject to certain risks of overseas investing including currency fluctuations and changes in political and economic conditions, which could result in significant market fluctuations. These risks are magnified in emerging markets.

Investments in small-capitalization companies are subject to greater price volatility, lower trading volume and less liquidity than investing in larger, more established companies.
Real estate investments are subject to factors such as changing general and local economic, financial, competitive and environmental conditions.

Alternative investments are speculative, subject to high return volatility and involve a high degree of risk including, but not limited to, the risks associated with leverage, derivative instruments such as options and futures, distressed securities, may be illiquid on a long term basis and short sales. There can be no assurance that these types of strategies will achieve their objectives or avoid substantial losses. Alternative investments may also be subject to significant fees and expenses.

Investments in emerging markets are subject to risks such as erratic earnings patterns, economic and political instability, changing exchange controls, limitations on repatriation of foreign capital and changes in local governmental attitudes toward private investment, possibly leading to nationalization or confiscation of investor assets.

Market Risk—Market prices of investments held by the Fund may fall rapidly or unpredictably due to a variety of economic or political factors, market conditions, disasters or public health issues, or in response to events that affect particular industries or companies.

AMG Distributors, Inc., a member of FINRA/SIPC.