Volatility

Volatility measures how much and how quickly the price of a security or market index changes. High volatility means prices swing dramatically in short periods, while low volatility indicates more stable, predictable price movements. It is typically measured using standard deviation of returns.

The VIX index, often called the fear gauge, measures expected volatility in the S&P 500 over the next 30 days. A VIX above 30 indicates high market anxiety, while below 15 suggests complacency. Historical volatility looks backward at actual price changes, while implied volatility is forward-looking.

Volatility is not inherently negative. It creates opportunities for patient, disciplined investors to buy quality assets at discounted prices during market sell-offs. However, high volatility can be psychologically challenging and may cause investors to make emotional decisions. Your ability to tolerate volatility should determine your asset allocation.