Ways to Help 401k Participants Understand the Risk of Their Portfolios

One of the most obvious ways to look at the risk of portfolio is by checking its standard deviation. Standard deviation is a statistical measurement that sheds light on historical volatility. The higher standard deviation is the more risk a portfolio has. Also, looking at Value at Risk will give you an approximation of possible loss/gain over specified period of time with selected degree of confidence. For example, the annualized standard deviation of well diversified portfolio on the screenshot is 5.6, whereas the annualized standard deviation of SP 500 is about 10.


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