The degree of price variation in an investment over time; higher volatility means higher risk.
Volatility measures how much an investment's price fluctuates over time, quantified by standard deviation. High volatility means prices swing wildly; low volatility means stable prices. Stocks are more volatile than bonds; individual stocks are more volatile than diversified funds. Volatility matters because it affects risk and returns: high-volatility stocks can generate huge gains or crushing losses in short periods; low-volatility stocks are stable but generate smaller returns. Young investors with long time horizons can tolerate high volatility; retirees should seek low volatility. The VIX (Volatility Index) measures market volatility: high VIX means markets are fearful and volatile; low VIX means calm markets. Understanding your volatility tolerance—how much price swings stress you—is crucial for choosing appropriate investments.