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Updated 2mo ago.
Updated 2mo ago.
Volatility measures the magnitude of price fluctuations of an investment over time. It is typically expressed as the annualized standard deviation of returns. High volatility means the investment's value can swing significantly in either direction over short periods.
The S&P 500 has a historical volatility of roughly 15-20% per year. This means a "normal" year can see the market swing by +20% or -20%. In 2022, the S&P 500 fell ~19% — painful but normal volatility. A bond ETF like ZAG.TO has much lower volatility (~5%), but also lower expected returns.
Volatility is a double-edged sword: it represents both the risk of loss and the opportunity for gain. Investors who panic and sell during corrections (high volatility) lock in their losses and often miss the subsequent recovery. Understanding that volatility is normal helps you stay invested and benefit from long-term returns.