There’s no universal “normal” for stock volatility, because it depends on a variety of factors like industry trends, market conditions, and a company’s fundamentals. Some stocks exhibit relatively small daily price fluctuations, while others can swing dramatically within the same period. Ultimately, an investor should measure a stocks volatility within the context of their own risk tolerance and investment goals.
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Planning Essentials
Putting market volatility to work for you
Key takeaways
- Volatility is a necessary component of a healthy stock market, which—although stressful to endure—is best addressed by remaining focused on your long-term plan.
- More often than not, trying to time the market is a recipe for investment failure. Instead, think of volatility as a normal part of investing, and continue your regular contributions to your retirement and investment accounts (systematic investing and dollar cost averaging).
- Make sure to periodically rebalance your portfolio during times of high volatility, as target allocations can drift—causing you to take on too much or too little risk for your investment goals.
Volatility is an inherent part of investing, influencing everything from day-to-day price changes to long-term market performance. While unexpected swings can be unnerving, understanding how volatility works is key to building a resilient portfolio. Staying informed about the factors that drive these fluctuations can help you make decisions that align with your financial goals—even in turbulent times.
The meaning of volatility in the market
Volatility refers to how significantly an investment’s price or an overall market index can fluctuate over time. High volatility often means prices swing dramatically in short time frames, while low volatility suggests more gradual shifts. It’s essentially the degree of variation in returns that indicates the level of market risk.
What drives market volatility?
Several factors—economic data, corporate earnings, geopolitical events, and overall investor
sentiment—all play a role in driving volatility. When uncertainty or unexpected news arises, prices can swing more sharply than usual. According to J.P. Morgan Asset Management’s Guide to the Markets, the S&P 500® has historically seen an average intra-year decline of around 14%—yet it often finishes the year in positive territory.1 These fluctuations highlight that short-term market disruptions are common and do not necessarily indicate a long-term trend.
How to calculate volatility
Volatility is often calculated using statistical measures like standard deviation, which shows how much an investment’s returns deviate from its average. Larger deviations mean a more volatile asset, while smaller ones suggest steadier performance. By understanding volatility, investors can better gauge an asset’s risk and potential price fluctuations.
Measuring the volatility of a stock
To measure a single stock’s volatility, analysts typically track its returns over a specific period (daily, weekly, or monthly) and compute the standard deviation. A higher standard deviation indicates bigger swings in price relative to the stock’s average performance. In practical terms, these larger swings can signal greater potential gains or losses over shorter time horizons.
Calculating volatility of a portfolio
Portfolio volatility depends on the combined volatility of each holding and how these holdings correlate with one another. Even if certain assets are individually volatile, they can offset each other’s movements if they don’t move in lockstep. This diversification effect often leads to lower overall volatility compared to a single, concentrated investment. When constructing or rebalancing a portfolio, investors aim to find a blend of assets that aligns with their desired level of risk.
A little volatility in the market is a good thing
Rather than something to be feared, moderate market corrections are normal and necessary for maintaining a healthy stock market. If you think of a rising market as a pressure cooker, corrections are the release valve that periodically prevents it from boiling over. It’s only when corrections don’t occur often enough that investors should be wary.
One of the biggest challenges, though, lies in our inherent behavioral biases. Even in the best of times, people tend to make financial decisions that run counter to their own long-term interests. During volatile times, those negative behaviors become amplified:
- Loss aversion: The pain we associate with losses feels more intense than the pleasure we get from gains, causing us to flee to “safe” assets—even if it means locking in losses.
- Herding bias: We’re social creatures who follow the crowd, which can lead to buying high and selling low.
- Recency bias: We often weigh recent information more heavily than long-term trends, overreacting to short-term market moves.
To counteract these tendencies—especially during tumultuous times—investors should remain focused on personal goals and a well-thought-out financial strategy rather than short-term noise.
Maintain your long-term focus
If there’s one lesson the stock market has taught us repeatedly over the years, it’s that the duration of your time in the market is a far better determinant of investment success than your timing of the market. Of course, it’s never easy to stick to your strategy while other investors scramble for the apparent safety of money market funds. And if you’re dealing with a short investment window (e.g., retirement is on the near-term horizon), then locking in gains and exploring various asset protection strategies should be top priorities.
But for those with at least a five-year investment horizon, market volatility may provide a potential opportunity to buy shares at lower prices if you’re employing a dollar-cost averaging strategy—whether through regular contributions to your employer’s retirement plan or monthly transfers of cash into a brokerage account. Dollar-cost averaging with mutual funds, for example, involves systematically investing a given amount of money at regular intervals. You buy fewer shares when share values are rising and more shares2 when they are declining. This reduces the average cost you pay versus the average market price.
Remember that markets rise and fall, but on balance, history shows that the overall trend is upward. Periodic volatility is an unavoidable part of this cycle. When you have a sound, well-constructed long-term portfolio, staying the course can often be the most impactful action you can take.
Make sure you rebalance
When markets become volatile, certain holdings in your portfolio may outperform while others lag. Over time, that can shift your asset allocation away from your intended strategy—for example, if stocks rise significantly, they may start taking up a bigger share of your portfolio than you initially planned. If you trust your original asset mix to help you pursue long-term goals, periodically rebalancing (often once a year) can bring your portfolio back in line. By doing so, you avoid inadvertently taking on too much or too little risk.
Market volatility FAQs
Sudden price swings can trigger emotional reactions, causing some investors to sell at a loss. Many also prefer predictable returns over unpredictable market fluctuations, but many traditional investments do not generate predictable returns or asset values. Changing prices and values are virtually inevitable in investing.
There’s no one-size-fits-all range, since it depends on each investor’s goals and risk tolerance. Lower volatility appeals to those seeking stability, while higher volatility may suit those comfortable with greater risk for potentially higher returns.
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1“Guide to the Markets,” J.P. Morgan Asset Management, 2025. https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets/
2A program of regular investing does not guarantee a profit or eliminate the risks of investing. Investors have to consider their financial ability to purchase shares systematically during periods of declining investment values.