Which investment type has shown the highest volatility of returns over the longer term?

• A. Deposits.
• B. Corporate bonds.
• C. Equities.
• D. Government bonds.

Answer: (C)

Equities tend to exhibit the widest swings in value, which translates to the highest volatility in long-term returns. Stock prices move with company performance, earnings surprises, economic shifts, and investor sentiment, and even small changes can lead to large percentage moves. Deposits provide very stable, insured principal with fixed interest, so their returns vary little. Government bonds are relatively steady because they’re backed by the government and respond mainly to interest-rate changes, not abrupt price swings. Corporate bonds carry credit and liquidity risks, making them more volatile than government bonds but still typically less volatile than equities. The combination of market, business, and sentiment factors driving stock prices explains why equities show the greatest long-run volatility, even though they also offer higher long-run return potential.