Glossary
Volatility
Volatility is the degree to which an investment's price moves up and down over time — the size and frequency of its swings, not its long-term direction.
It is usually measured by standard deviation, and it differs from loss: a volatile asset held through its swings may deliver excellent long-run returns, while a placid one may quietly lose to inflation. Stock volatility is the price of stock returns — markets pay a premium precisely because the ride is uncomfortable.
Why it matters in practice
Volatility becomes real loss through two doors: needing to sell during a downturn (a time-horizon failure) or choosing to sell during one (a risk-tolerance failure). Both are addressed in advance — matching assets to when money is needed, and sizing stock exposure to what its owner can genuinely hold. For long-horizon savers making regular contributions, volatility even helps: the same dollars buy more shares when prices fall.
Related terms: Standard Deviation · Drawdown · Risk Tolerance · Bear Market · Dollar-Cost Averaging