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.

Lower Volatility May be Short-Lived

Capital market volatility is a critical factor in the financial lives of retirees and near-retirees.

Volatility plays a major role in the pricing of many different types of annuities, and volatility is the major driver of...

Demand for Longevity Risk Picks-up with Lower Volatility

Demand for longevity risk has been returning to the UK pension market. High levels of volatility during the financial crisis deterred many players in the pension buyout market. The return to normalcy in the capital markets may, in fact, be contributing to under-pricing of longevity risk among those who are providing solutions to UK pension plan sponsors who seek to offload longevity-related liabilities. A worthwhile article in the Financial Times discusses the range of options that are...
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Target Date Funds Enhanced by Junk

It turns out that many target date funds are juiced by high yield or "junk" bonds. The issue is that target date funds (which presumably become more conservative over time as participants age) are riskier than what is generally perceived by consumers, regulators and financial advisors. This higher level of risk is consistent with the higher than expected volatility and losses experienced by many target date funds during the financial crisis. According to a recent Bloomberg article, up to 35...
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Teresa Ghilarducci on Pension Reform

Teresa Ghilarducci is a staunch advocate of comprehensive...

Longevity Risk and Portfolio Protection Without a Variable Annuity

Two of the most daunting risks faced by the majority of retirees are: