Volatility
What is volatility?
Volatility measures how much an investment’s price jumps around. A volatile investment might rise 5% one week and fall 7% the next. A less volatile one moves more gently.
Is volatility the same as risk?
Related, but not the same. Volatility is the ups and downs. Risk is the chance you lose money overall. A volatile investment can still make money in the long run, but the ride will be bumpier.
Why does volatility matter?
If you need your money soon, volatility matters a lot. A big drop right before you need to sell hurts. If you’re investing for decades, short-term volatility matters less because you can wait for recovery.
Key points about volatility
- How much prices move up and down
- Not the same as risk, but related
- Matters more for short-term investors