Glossary · Stocks and markets

Volatility

Volatility measures how much and how fast a price swings up and down. The bigger the swings, the higher the volatility and, usually, the risk.

Also called: market volatility, standard deviation, price swings

Live numbers, updated every night

S&P 500 volatility, last 12 months

9.0%

At a yearly rate, from monthly returns to Oct 2026. Over all months since 1871: 14.0%; since 1950: 12.0%.

In plain words

Two roads go from the same town to the same city. One is a flat highway; the other climbs and plunges through the mountains. Both get you there, but one is a much rougher ride. In markets, the roughness is volatility.

It is usually measured as the standard deviation of returns: roughly, how far a typical month (or day, or year) strays from the average. A volatility of 15% a year means that in about two years out of three, the return lands within 15 points of its average.

For the S&P 500, volatility over the last 12 months was 9.0% a year, against 14.0% measured over all the months since 1871. Calm and stormy periods come in clusters.

Same start, same end, different rides. Volatility measures how far returns stray from their average.

Example

Same average, very different rides

Fund A returns +8%, +7%, +9% and +8% in four years. Average: 8% a year, and it barely varies.
Fund B returns +30%, −20%, +25% and −3%. Average: 8% too, but with huge swings.
$10,000 in Fund A grows to $13,604. In Fund B it ends at $12,610.
The same average, yet the bumpier ride ended lower: big losses cost more than equal gains add.

That gap is called volatility drag: roughly, the compound return equals the average return minus half the variance.

One level deeper

Volatility is the standard measure of risk in finance, used in the Sharpe ratio and in pricing options. But it treats a jump up the same as a fall, and it says little about rare disasters: a market can be calm for years and then crash.

Investors also watch implied volatility, the swings that option prices expect. The best-known gauge is the VIX, built from options on the S&P 500 and nicknamed the “fear index”.

Stock volatility comes in waves. Measured over 12 months, it peaked at 67% in Aug 1932 and fell as low as 3.2% in Dec 2017. Our figures use monthly average prices, which smooth out daily jumps, so they understate the swings an investor saw from day to day.

S&P 500 volatility since 1872

The swings of US stocks measured over each 12-month window: the standard deviation of monthly returns (dividends included), at a yearly rate. Volatility jumps in crises (the early 1930s, 1987, 2008, 2020) and sinks during long, calm bull markets.

S&P Composite total return from monthly average prices: standard deviation of the last 12 monthly returns × √12. Monthly averages smooth daily moves, so these values are lower than volatility measured from daily closes.

The numbers behind the chart

Date	Volatility, last 12 months
Jan 1872	8.2%
Dec 1880	12.8%
Dec 1890	10.3%
Dec 1900	12.4%
Dec 1910	10.7%
Dec 1920	16.3%
Dec 1930	22.2%
Dec 1940	18.3%
Dec 1950	11.5%
Dec 1960	8.9%
Dec 1970	16.7%
Dec 1980	14.6%
Dec 1990	13.2%
Dec 2000	9.4%
Dec 2010	12.6%
Dec 2020	23.7%
Dec 2022	14.8%
Dec 2023	10.4%
Dec 2024	5.7%
Dec 2025	13.6%
Oct 2026	9.0%

Why it matters

It is the price of higher returns: stocks have earned more than bonds and cash over the long run, and volatility is what their owners put up with in exchange.

It matters most when you need the money: a volatile portfolio may be down just when you have to sell.

It drags down compound returns: the same average return with bigger swings grows less, as the example shows.

A common mistake

Myth: Volatility and risk are the same thing.

In fact: Volatility is one kind of risk: short-term swings. For a long-term investor the bigger risks may be a permanent loss (a company going bust) or failing to keep up with inflation, and a volatility number captures neither.

Questions people ask

How is volatility calculated?

Take the returns over many periods (days or months), compute their standard deviation, and scale it to a year: multiply by the square root of 12 for monthly returns, or of about 252 for daily ones.

What is a normal level of stock market volatility?

For the S&P 500, about 12.0% a year since 1950 on our monthly measure, and 14.0% since 1871. Measured from daily closes it comes out higher.

Is high volatility bad?

It is uncomfortable, and it raises the odds of a big loss at the wrong moment. But it is also why stocks have paid more than safer assets over long periods: investors demand a reward for bearing it.

About the numbers

The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
This page explains a term. It is not investment advice.