Glossary
Standard Deviation
Standard deviation is a statistical measure of how widely an investment's returns vary around their average, used in investing as the standard yardstick of volatility.
An investment averaging 8% with a standard deviation of 15 has typically landed between roughly −7% and +23% in about two-thirds of periods — and outside that range in the rest. A higher number means a bumpier ride; it says nothing about direction.
Why it matters in practice
Standard deviation lets risk be compared across funds the way expense ratios compare cost, and it underlies most "risk-adjusted return" metrics. Its limits matter too: it treats upside and downside surprises identically, is based on history, and markets produce extreme moves more often than the neat statistics imply — so it is a useful comparison tool, not a guarantee of the worst case. For most investors, maximum drawdown is the more visceral companion figure.
Related terms: Volatility · Beta · Drawdown · Alpha · Risk Tolerance