When you open a stock investing account through Step as a parent or legal adult, you will fill out a brief questionnaire that will enable us to provide you with a portfolio recommendation (for yourself or your teen). Using our proprietary volatility rankings, we will recommend one of three volatility buckets for you to confirm: low, medium, or highly volatile.
The price of stocks can change frequently. These changes can be driven by characteristics of the security, as well as any number of political or economic reasons – a global pandemic, interest rate hikes, war.
Volatility refers to just how quickly and by how much a stock (or any security) can increase or decrease in price over a period of time. An investment that is very volatile can have big swings in price over a short period of time whereas an investment that is less volatile tends to be more steady. For more information on volatility, check out this post.
There’s a concept called a beta in investing. A beta is a number that tells you how much a stock price is expected to go up or down compared to the overall market, usually as measured by the S&P 500 index.
For example, a beta greater than 1.0 suggests that the stock’s price swings more than the overall market (i.e more volatile), a beta less than 1.0 indicates it changes less than the overall market (i.e less volatile), and a beta of 1.0 means that it changes about as much as the overall market.
Step predominantly looks at a stock or ETF’s performance over a 5 year period to classify whether it is low, moderate, or high volatility. In cases where a stock’s price has changed more in the last 1 year than it has in the last 5 years, Step considers that security more volatile. These volatility buckets will be refreshed periodically.
If you are opening a stock investing account for your teen, they will only be able to buy and sell securities aligned to the volatility level you select or lower. For example, if you select moderate, they can only invest in stocks and ETFs that are moderate or low volatility (unless you update your preference).
If you are 18 or older and the owner of your account, you will see if a stock or ETF falls outside of your desired volatility level but we will not prevent you from investing in it. It’s important to do your own research and make a decision that you’re comfortable with.
The information presented herein is for educational purposes only and does not constitute investment advice or an offer to buy or sell any security, investment or other product. See our additional stock and crypto risk disclosures.
