Volatility

Volatility describes how much an investment's price jumps around over a period. A high-volatility investment can rise or fall a lot in a short time; a low-volatility one moves in smaller steps. It says nothing about which direction the price will go.

Imagine two investments that both start at $100. One stays between $98 and $102 all year. The other swings between $80 and $120. The second is more volatile, even if both end the year at the same price.

Broad stock markets are volatile. The S&P 500, an index of 500 large US companies, returned about negative 37 percent in 2008 with dividends reinvested, and has also had years of large gains. Volatility matters more if you may need the money soon, because a fall could force you to sell; a licensed professional can help with individual decisions.