Investing in securities such as mutual funds inevitably involves daily price movements. Understanding these up and down price movements—also known as volatility—can help when deciding among mutual funds as well as figuring out your level of comfort with a mutual fund’s potential future volatility.
There are various ways to calculate volatility, including metrics such as beta, standard deviation, alpha and Sharpe ratio. Beta measures the volatility of a security in comparison to the market as a whole. In other words, when looking at beta, an investor can determine whether a mutual fund experiences lower or higher price movements compared to the overall market.
Market beta is always set at 1, so a mutual fund with a beta of 1 has experienced the same price movement as the market. Further, a beta of less than 1 suggests the security is less volatile than the market. Therefore, if a mutual fund has a beta of 0.70, it was 30% less volatile than the market.
Vice versa, a beta of greater than 1 means that the security was more volatile than the market. As an example, if the beta of a mutual fund is 1.3, it has historically experienced 30% more up and down movements than the market.
Jemma Financial Wisdom: While some investors may prefer a mutual fund with a lower beta, remember that the market has two directions: A lower-beta mutual fund may not fall as much as the overall market when prices are falling, but it may not increase as much as the market when prices are rising.
Need assistance? Call 855.662.2121 or email info@jemmafinancial.com
Important Notice
You are now leaving the Jemma Financial Services website and will be entering the Charles Schwab & Co., Inc. (“Schwab”) website.
Schwab is a registered broker-dealer, and is not affiliated with Jemma Financial Services or any advisor(s) whose name(s) appear(s) on this website. Jemma Financial Services is/are independently owned and operated. [Schwab neither endorses nor recommends {Name(s) of Investment Management Firm(s)}, unless you have been referred to us through the Schwab Advisor Network®. (This bracketed language is for use by Schwab Advisor Network members only.)] Regardless of any referral or recommendation, Schwab does not endorse or recommend the investment strategy of any advisor. Schwab has agreements with “Name(s) of Firm(s)” under which Schwab provides Jemma Financial Services with services related to your account. Schwab does not review the Jemma Financial Services website(s), and makes no representation regarding information contained in the Jemma Financial Services website, which should not be considered to be either a recommendation by Schwab or a solicitation of any offer to purchase or sell any securities.
IMPORTANT NOTICE
You are now leaving the Jemma Investment Advisors, LLC Website and will be entering the Charles Schwab & Co., Inc. ("Schwab") Website. Schwab is a registered broker-dealer, and is not affiliated with Jemma Investment Advisors, LLC, or any advisor(s) whose name(s) appears on this Website. Jemma Investment Advisors, LLC is independently owned and operated. Schwab neither endorses nor recommends Jemma Investment Advisors, LLC. Regardless of any referral or recommendation, Schwab does not endorse or recommend the investment strategy of any advisor. Schwab has agreements with Jemma Investment Advisors, LLC under which Schwab provides Jemma Investment Advisors, LLC with services related to your account. Schwab does not review the Jemma Investment Advisors, LLC Website, and makes no representation regarding the content of the Website. The information contained in the Jemma Investment Advisors, LLC Website should not be considered to be either a recommendation by Schwab or a solicitation of any offer to purchase or sell any securities.
This will close in 0 seconds