As an investor, what do you prefer: certainty or uncertainty?
Certainty, of course. We all do.
When things seem certain, the future looks bright and we embrace risk-taking. When things seem uncertain, it’s hard to imagine things ever getting better, and we shun risk at all costs.
But is there really such a thing as a certain environment when it comes to investing? No. There is always risk in markets, even if you can’t see it, and by extension, there’s always uncertainty.
It is only our perception of risk that changes.
If the recent past is a calm market filled with good news, we perceive things to be quite certain. If the recent past is a volatile market filled with bad news, uncertainty is deemed to be high.
How are investors feeling today?
Volatility over the last year has been lower than any period in history.
At the same time, performance has been well above average, leading to one of the highest risk-adjusted return environments we’ve ever seen.