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VolatilityText Box:  
is a natural characteristic of any investment where its future value is uncertain.

Cash is not volatile because you know in 6 months it will still be worth what it is today. The price of cash does not change.

The future value of a stock market investment on the other hand is uncertain. The future value of value of a company depends on how much it earns after paying all its costs and taxes.

How much it earns depends on many things; is there a lot of demand for what it is selling, is demand for what it is selling likely to grow and, by how much, how much competition does the company have, what will happen to the economy, is demand for its products likely to fall in a recession or not, how well is it run and, many others? Text Box:  

The less certainty you have over the earnings of a company, the more volatile the price will be. If the company earns significantly less than expected, its price may fall more than other companies, if profits rise significantly more than expected, its price may rise more than other companies.

Financial theory states that companies with higher volatility also tend to be companies whose share prices provide a higher level of return over time.

One of the reasons is that companies with higher volatility tend to be growth stocks, where future earnings are both uncertain and potentially significant. This potential for return is considered sufficient reward for those investors who take the risk of the higher volatility.

However, higher risk does not always equal higher return and investments with higher volatility can just as easily be investments with higher losses.  For example, technology stocks were higher risk higher return investments in the late 1990s, but were higher risk higher loss investments from 2000 onwards..   

One of the most successful schools of investing, value investing, does not use volatilities as a guide to whether an investment will provide an above average return.  In fact, any manger buying stocks will consider the valuation of a company above all else.

Investors should be very wary of any wealth management service that uses only volatility as a guide to risk and return.