Why dividend compounding will dwarf effect of volatility

ON UK INCOME

Fund managers are being driven up the wall by the yo-yoing of the stock market. It is moving by sizable percentages each week, running up then stepping down before jumping up again.

A strategy of investing based on fundamentals can look naïve; fund managers can look stupid buying stocks that may be 10% or even 20% lower within days. Many have pulled back and decided that it is safer to do nothing. Double-guessing whether the market will be higher or lower in a week or a month is something of a mug’s game. No one knows, and investment management should be about more than guessing. And yet there are opportunities. Higher volatility may cause the price of growth stocks to become a lot more erratic. But the effect is less evident for income stocks. A business with a ...