Investing Advice

Evaluating Mutual Fund Investment Risk

All investments have some degree of risk. But how do you judge the risk of a mutual fund?

Risk is a tough word to nail down. So letís just call risk the chance that you might lose money.

Here are a few measurements of risk, available at www.morningstar.com

  1. Standard Deviation. In a nutshell, this is the fundís percentage price movement, up and down. The higher the number, the bigger the price swings the fund has experienced. If the fund is under 25, then you can ignore this measure.

  2. Beta. This number shows how much a fund moves when compared to an appropriate index such as the S&P 500. A fund with a beta of 1.12 has performed 12% better than the index in good times, and 12% worse in down markets. A beta of 1.0 would be the index fund itself.

  3. Alpha. This is a way of measuring a fundís performance, adjusted for risk. You want an alpha that is greater than zero.

Other Stock Market Basics Topics:
  1. Mutual Fund Advantages
  2. History of Mutual Funds
  3. NAV
  4. Dollar Cost Averaging
  5. General advice about choosing a fund
  6. Mutual Fund Ratings
  7. Evaluating Mutual Fund Investment Risk
  8. Mutual Fund Share Classes
  9. Mutual Fund Fees
  10. The Mutual Fund Prospectus
  11. How important is the manager's length of experience?
  12. Why is the prospectus hard to understand?
  13. Mutual Fund Annual Report
  14. Comparing your fund to the competition
  15. Comparing funds on an after-tax basis
  16. Average Return on Investment
  17. How Not to Pick a Mutual Fund
  18. Cashing in Your Fund
  19. When to Sell Your Fund
  20. Mutual Funds and Asset Allocation
  21. When to get started with a mutual fund
  22. Types of Mutual Funds
  23. Value Stock Funds
  24. Growth Stock Funds
  25. Small and Micro-cap Stocks
  26. Mid Cap
  27. Large Cap Companies
  28. Income Stock Funds
  29. Mutual Fund Index
  30. Enhanced Index Funds
  31. Sector Mutual Funds
  32. Stock Market Sectors
  33. Defensive Stocks
  34. International Funds
  35. Real Estate Mutual Funds
  36. Socially Responsible Funds
  37. Balanced Funds
  38. Tax-Efficient Funds
  39. Bond Convertible Funds
  40. Junk Bond Funds
  41. Mixtures of stock types
  42. Closed End Funds
  43. Exchange Traded Funds (ETFís)
  44. Stock Picking Strategy - Picking your own stocks?
  45. Fund names, and what they really invest in
  46. How to get started
  47. Where can I start investing with no money?

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