Lower-volatility investments

Definition

Lower-volatility investments are financial assets that exhibit smaller price fluctuations over time compared to higher-volatility investments. These assets are often considered safer and more stable, making them attractive for risk-averse investors.

5 Must Know Facts For Your Next Test

1. Lower-volatility investments typically include bonds, dividend-paying stocks, and certain mutual funds.
2. These investments are less likely to experience dramatic changes in value due to market conditions.
3. Lower volatility is often measured using statistical tools such as standard deviation or beta.
4. Investors might sacrifice some potential return by choosing lower-volatility investments for increased stability.
5. In a well-diversified portfolio, lower-volatility investments can help mitigate overall risk.

Review Questions

• What types of financial assets are typically considered lower-volatility investments?
• How is the volatility of an investment commonly measured?
• Why might an investor choose a lower-volatility investment over a higher-volatility one?

Related terms

Standard Deviation: A measure of the amount of variation or dispersion in a set of values.

Beta: A measure of a stock's volatility in relation to the overall market.

Diversification: The practice of spreading investments across various financial assets to reduce risk.