Investors have gravitated toward low-volatility stocks in order to protect themselves from a future market crash. Yet even though these stocks have their advantages, you need to know one big risk before you make a huge commitment to low-volatility plays.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks more closely at low-volatility stocks. Dan notes that over time, the surprising thing about these stocks is that they've outperformed higher-volatility stocks, even though they have less risk. Right now, Johnson & Johnson (NYSE:JNJ), PepsiCo (NASDAQ:PEP), and Verizon Communications (NYSE:VZ) are among stocks with relatively little volatility. Yet Dan notes that volatility changes over time, and that in the past, bank stocks Bank of America (NYSE:BAC) and Citigroup (NYSE:C) had relatively low volatility as well. When the financial crisis hit, those bank stocks surprised their shareholders with the depth of their declines. Dan concludes that it's important to be careful with your investing no matter what strategy you use.