When it comes to investing in stock equities, risk will always be involved, of which, these risks typically exceed other investment risks so made in areas such as bonds and real estate. The primary reason why stocks are subject to greater risk and volatility has a lot to do with the fact that the buying or selling of a particular stock or stock fund investment is basically as easy as pushing a button on one’s computer or cellphone, as well as the fact that with the exception of major holidays, the stock market is open Monday through Friday and that the amount of trading volume done each of those days, signifies that the liquidity of equity investments permits investors to buy or sell whatever that they own or desire, quite easily, virtually all of the time.
So then, because of the ample liquidity of stocks and the market that it trades in, this indicates that there is going to be more volatility in the equity market, than just about any investment that a person could think of because the market has a multitude of buyers and sellers that are available to make trades on either side of the equation, Monday through Friday. When it comes though, to why it is that stocks fall faster than they go up, the primary reason why this is so, though not the only one, is the psychology of people, of which, the fear of losing money exceeds the greed that they may express in the making of money on their stock investments. In other words, there are plenty of investors who cannot stomach losing any appreciable amount of money on their investments, and when they feel that their investments appear to be in danger of dropping like a stone, they sell, to not only stop the loss, but also to stop the psychological pain.
Indeed, we read at atlantafed.org, that “stock prices fell roughly 50 percent from peak to trough from October 2007 to March 2009.” This type of drop over such a short period of time, creates absolute havoc in those that have investments, because losing one-half of one’s investment in 18 months, is going to impact not only an investor’s perception of how they are doing, but also will hit them in their pocketbook, and especially in their belief that they will or will not have enough monies saved up for their retirement years. So, basically, when the market drops and it appears that there is no end in sight, more and more investors, are going to throw in the towel, and await safer waters, rather than risking losing it all. This is why when the confidence that investors have in the stock market is seriously hampered, they will get out first, and ask questions later; whereas, when it comes to stocks going up, investors making decisions to buy a particular investment aren’t typically in a hurry or of a necessity to do so, because a given investment, is available for them, to invest in, without any real pressure that it has to be done, at that particular moment or time. In summary, stocks go down faster than they go up, because the fear of losing it all, is something that many investors respect, and because of that, the better part of valor, necessitates that they get out when they cannot handle the pressure and cannot afford the loss.