Volatility
How much an investment's price or returns bounce around over time—higher volatility means larger swings and higher risk.
What You Need to Know
Volatility measures the speed and magnitude of price changes. In investing, it is typically expressed as the standard deviation of returns.
Why It Matters:
- High volatility = wider return range (big gains AND big losses)
- Low volatility = steadier performance but lower upside
- Volatility compounds losses—after a 40% drop you need a 67% gain to break even
Examples:
- U.S. large-cap stocks: ~15% volatility
- Investment-grade bonds: ~5% volatility
- Cash: ~0% volatility
Use volatility to align investments with your time horizon and risk tolerance.
Sources & References
This information is sourced from authoritative government and academic institutions:
- investor.gov
https://www.investor.gov/introduction-investing/investing-basics/glossary/volatility
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Risk Tolerance Quiz
12-question quiz to discover your investor risk profile and get personalized asset allocation recommendations
Asset Allocation Planner
Build and stress test portfolio allocations with risk profiles, glide paths, and diversification metrics.
Investment Risk Stress Test
Test your portfolio against historical market crashes - see losses, recovery times, and prepare for downturns
Related Terms in Investment Analysis
Appreciation
The increase in an asset's value over time, whether it's real estate, stocks, or other investments.
Asset Class
A group of investments with similar behavior, risk, and regulatory profiles (e.g., stocks, bonds, cash).
Bond
A fixed-income investment where you loan money to a government or corporation in exchange for regular interest payments.
Bond Yield
The return an investor earns on a bond, expressed as a percentage, which can be calculated as current yield (annual interest ÷ current price) or yield to maturity (total return if held until maturity).
Capital Gains Tax
Tax on profits from selling investments like stocks, bonds, or real estate.
Capital Loss
A loss realized when you sell an investment for less than you paid for it, which can offset capital gains for tax purposes.