Terms that measure risks of your investments. #personalfinance #investing

Category – money and business

Reading time – 2 minutes

When ever you invest your hard earned money or even inherited money or any money for that matter, there is always some risk.

It may decrease or even evaporate or atleast returns may be lower than expected.

Inflation may kill returns or taxes may eat it away.

Covid like uncertainty might hit your money.

Than what to do. There is not much that can be predicted by human beings. They may claim credit for random guesses but future is not open for speculations.

So, you may use surrogate markers of risk and calm your nerves a bit into thin blanket of mathematics.

Here are three terms you may hear accidentally from financial experts.

1. Standard deviation – This shows amount of expected volatility.

It shows amount of fluctuations possible in an investment from mean value. More standard deviation indicates wide fluctuations are possible,so keep your belts tight.

2. Beta – Risk of your investments in comparison to the market as a whole.

It compares investment to market index like nifty or sensex.

Beta 1 means investment will move in sync with standard index. Higher the beta, more volatility is expected.

3. Alpha – It is extra earnings in percentage of an investment in comparison to a benchmark index.

For example if sensex returns 10% Durning a period and your investments return 12%. Hence your alfa is 2% ( 12-10).

So next time you read this words in a newspaper or blog then you would know what these mean.

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Inspiration – Financial blogs

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