By BEN LEVISOHN
With the gut-churning volatility of the past few years showing no sign of letting up, some investors are swearing off stocks and piling into safe havens like cash and Treasurys.
But what if there were a way to beat the stock market’s returns over the long haul with significantly less short-term instability?
In this age of Ponzi-scheme blowups and complex financial instruments that self-destruct in times of crisis, such a notion sounds too good to be true. Yet academic research has shown that a relatively simple strategy of buying the least-volatile stocks and holding them for the long term has matched the overall market’s returns—without the violent swings.
From the beginning of August through Thursday, the Standard & Poor’s Low Volatility Index, a portfolio of the 100 least-volatile stocks in the S&P 500-stock index, lost just 1.1%, compared with a 9.8% drop for the S&P 500 overall. That, of course, is to be expected, since the least-risky stocks tend to outperform during nasty short-term selloffs.