FROM Ben Carlson at a Wealth of Common Sense: Going back to the late-1980s, emerging markets have exhibited over 60% higher volatility in monthly returns than the S&P 500.Small-cap stocks, as measured by the Russell 2000, have also shown more volatility than the S&P (about 30% higher).My experience has been that the higher the volatility in an asset class or investment, the higher the opportunity for investor mistakes. Having said that, investors who are willing to accept more volatility in their holdings can use it to their advantage.If you take a look at the annual return and volatility of the S&P 500, Russell 2000 and MSCI Emerging Markets index going back to 1988, the returns are similar at 10.2%, 9.8% and 10.6%. But volatility numbers are much higher in small caps at 18.6% and emerging markets at 23.2% compared to the S&P at 14.3%. However, the return of a simple equal-weighted portfolio of the three, rebalanced annually, is higher at 11% than either of the individual markets, ...
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