What is the effect of market volatility on investments?

Market volatility refers to the degree of variation in trading prices over time, which can be caused by various factors such as economic indicators, investor sentiment, geopolitical events, and changes in interest rates. The correct choice indicates that market volatility creates both potential opportunities and risks for investors.

When markets are volatile, some investors may see opportunities to buy assets at lower prices, anticipating that they can later sell them for a profit when the market stabilizes or rises. Conversely, volatility can also lead to risks, as prices can drop unexpectedly, leading to losses for those who may not react quickly enough or make poor investment choices in a turbulent market environment. This dual nature of volatility is essential for investors to understand, as it necessitates a well-considered strategy that factors in their risk tolerance and investment goals.

The other choices do not adequately capture the essence of market volatility:

• The assertion that it guarantees profits overlooks the inherent risks that come with high volatility.

• The idea that it has no impact on buyer confidence or investment decisions is inaccurate, as volatility often affects how investors feel about their portfolios and can influence their decisions significantly.

• The suggestion that it only affects safer, low-risk assets fails to recognize that volatility can impact all types of investments, including stocks, bonds,