Volatility

Volatility measures the degree to which an asset's price moves up and down over time. It is typically expressed as standard deviation or annualised percentage. A stock with 30% annual volatility can be expected to move about 30% up or down from its average price in a given year.

High volatility is often associated with uncertainty and risk—but it also creates the potential for high returns. Asset classes like small-cap stocks or emerging market equities are more volatile than large-cap stocks or government bonds, and they tend to offer higher long-term returns as compensation.

For long-term investors, short-term volatility is largely irrelevant—what matters is the end value of your portfolio over your investment horizon. For investors who might need their money soon, high volatility is a genuine risk because a severe market drop shortly before withdrawal can be very damaging.