Your Mutual Fund's Standard Deviation

The standard deviation of a mutual fund is something that you will need to be aware of before you invest in one. Here are the basics of standard deviation and what it means to you as a mutual fund investor.

Standard Deviation

The standard deviation of an investment is the amount of dispersion that the results have compared to the mean. If a mutual fund has a high standard deviation, this means that it is very volatile. If the standard deviation is low, this means that you have a safer form of investment that will not experience extreme highs and lows.

Investor Implications

The deviation gauges how far away it from the growth curve the price tends to get. For example, you could have a mutual fund that provides an astounding return one year and a loss the next year. However, when you average these returns together it appears that the mutual fund provides steady growth. As an investor, with this type of mutual fund you have to time it perfectly in order to benefit from your investment. By comparison, if you choose a mutual fund that has a low standard deviation, you can feel relatively comfortable that the value of the fund will continue to grow slowly.

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