Question

How do investors evaluate the performance of their investments?

What does a longer standard deviation indicate? What does Standard deviation measure?

Answer 1

I) Evaluation of performance of investments :

Performance of investments can be evaluated using yield, rate of return & capital gains & losses.

a) Yield : It is income on investments pays during the specific period. All banks have yield as do dividend paying stock, most mutual funds & banks account including CDs.

b) Rate of return : It is required to find total return on investments. It is calculated dividing the change in value plus income by the amount invested.

c) Review & understand accounts statement

d) Capital gains or losses on capital assets invested. It can be short term or long tent gains and losses.

e) Determine the factor in inflation : If investments are held for long term then inflation can play big role in calculating the rate of return.

II) Standard deviation is statistical measure of market volatility, measuring how widely prices are dispersed from the average price.

High standard deviation indicates that data point are spread out over wider range of values.

III) It is mathematical measurement of average variance. It measures how spread out numbers are from an average value. It is calculated taking the square root of variance, which is average of the suqared differences of the mean.