If an investment is considered “volatile”, it means…

The simple answer is: the value of the investment may be hard to predict.

The long answer is that volatility is the variation of a price of an investment over time. Prices are compared by using the standard deviation of returns. Basically the word volatile means how close the investment stays to its average price. A highly volatile investment would have dramatic swings, going up or down many percentage points. A stable investment would be one that stays close to that initial value, maybe rising or falling a fraction of percent.

If an investment is considered volatile it means you could be in for a bumpy ride since the value of the investment may be very hard to predict due to uncertainty behind the investment. The silver lining is that as volatility increases the ability to make money faster also increases. On the flip side though remember that as volatility goes up so does risk associated with it.

If you are looking for an overall indicator of market volatility Investopedia suggests that:

“market volatility can be seen through the VIX or Volatility Index. The VIX was created by the Chicago Board Options Exchange as a measure to gauge the 30-day expected volatility of the U.S. stock market derived from real-time quote prices of S&P 500 call and put options. It is effectively a gauge of future bets investors and traders are making on the direction of the markets or individual securities. A high reading on the VIX implies a risky market.”


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Market Volatility

Compounding Returns