Understanding Volatility: The "Rollercoaster" of Investing

What is Volatility?

Imagine you are driving to a destination.

• Path A is a flat, straight highway. You know exactly when you will arrive.

• Path B is a mountain road with sharp turns and steep drops. You might arrive at the same time as Path A, but the ride will be much more nerve-wracking.

Volatility (or Standard Deviation) measures how much a stock’s price "swings" away from its average. If a stock has high volatility, its price jumps up and down like a hyperactive child. If it has low volatility, it moves steadily like a turtle.

Risk vs. Uncertainty

Many people think volatility is the same as "losing money." That’s not true.

• Volatility is just the speed and size of price changes.

• Even a stock that is going up 20% every year can be volatile if it drops 10% one month and gains 15% the next.

Standard Deviation helps us put a number on this "jumpiness." A high number means a wilder ride; a low number means a smoother journey.

How to Use This Knowledge

When you look at your portfolio on the SNSF Global Investing Platform, you’ll see that different assets have different "ride qualities":

• Government Bonds: Very low Standard Deviation (The Highway).

• Blue-Chip Stocks: Moderate Standard Deviation (The Main Road).

• Tech Stocks or Crypto: Very high Standard Deviation (The Rollercoaster).

The goal isn't to avoid the rollercoaster—usually, the rollercoaster is what gets you to the destination faster! The goal is to make sure you have enough "safety belts" (like Bonds) so you don't jump off the ride mid-way.