Sarah Ketterer: My Favorite Indicator

I'm watching volatility. The MSCI World Index, which tracks developed markets, had an average annualized return of 10% over the past 30 years. Volatility, or the risk that the index's returns would swing wildly compared with historic norms, averaged 15%. In the credit crisis, it shot to more than 40%. It's now 25%. If volatility begins to rise again, that's reason to be more cautious. For now, as volatility trends down, equity returns should trend up: The 15-year annualized return for the MSCI World is 6%, well below the 10% long-term average.

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