
Pop quiz: Investment X and Investment Y have each returned 10% over the last 5 years. Which one is better? It is tempting to claim neither, as their returns are equal. But how does your response change if we also provide this fact: Investment X went up slowly and steadily each year, while an investment in Y was a wild ride – down 10% in two of those five years. Our guess is that most people would strongly prefer Investment X with this new information. The moral: when evaluating investments, one must assess both returns and risk together. Standard deviation…
Read More