Volatility and your Time Horizon
The volatility of an investment is measured by the standard deviation of its rate of return.
(If your statistics is a little rusty, you can think of the standard deviation as measuring how far away from the average the return rate for any one year is likely to be.
The greater the standard deviation, the more variable the rate of return.)
This interactive graph shows how expected returns and expected fluctuations affect the likely outcomes of your investment.
The graph uses a random process, so there is uncertainty built into the result - just like life!
You choose an investment with a specified return and volatility, and the graph will produce a bell curve of possible outcomes.
The area of the "negative return zone", shown in red, is proportional to the probability that you will lose money on your investment.