Definition
How much an investment's price swings. Stocks are volatile in any given year and remarkably consistent over decades; volatility is the price of admission for long-term returns, not a malfunction.
Why it matters
Volatility is why stocks pay more than savings accounts, and misreading it as danger is why investors sell low. Expecting the swings in advance is most of surviving them.
Example
A portfolio drops 20% in a bad year, and the investor who expected volatility keeps contributing, buying at lower prices. Ten years later the crash is a blip on an upward chart; the panic-seller's losses were the only permanent ones.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.