Markets Plunge: Volatility Rules

Last Updated Aug 10, 2011 5:26 PM EDT

The one word I didn't want to hear on my vacation was "VOLATILITY". Alas, from the moment this "working vacation" started on August 1st, right through the bitter end later this week, the V-Word has made for, and will make for some more, crazy days.

I went to the trusted Merriam-Webster, to help understand what volatility means, especially as it pertains to the up and down markets.

Definition #1: "Tending to erupt into violence"...well, we got that covered! On Monday, the Dow dropped over 600 points and the S&P 500 plunged 6.7 percent. For the S&P, it was the 12th WORST day in terms of percentage losses in the past 50 years. Today it's another down day and frankly, we're likely to see a lot more "eruptions" before this mess settles down.

Definition #2: "Characterized by or subject to rapid or unexpected change"...check! On Tuesday, it took most of the trading session for investors to wrap their heads around the Federal Reserve's statement that it would hold short-term interest rates near zero through at least 2013. Once they did, they pushed up stocks. For the Dow, a gain of over 400 points and for the S&P 500, a 4.7 percent pop. It was the 22nd biggest UP day in percentage terms over the past 50 years. Of course that was before today's 4 percent rout.

Definition #3: "Difficult to capture or hold permanently: evanescent, transitory"...this may be the most comforting definition of all. I know that this period is painful and scary, but it too shall pass. Unfortunately, it will also test your emotional strength and your ability to stay true to your long-term investment plan.

I know that at times like these, you want the constant, boring merry-go-round, but as the Rolling Stones once sang, "you can't always get what you want," so hang on for the volatile, roller-coaster ride--it's the price of admission for being an investor.

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    Jill Schlesinger, CFP®, is the Emmy-nominated, Business Analyst for CBS News. She covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." Prior to her second career at CBS, Jill spent 14 years as the co-owner and Chief Investment Officer for an independent investment advisory firm. She began her career as a self-employed options trader on the Commodities Exchange of New York, following her graduation from Brown University.