THE IMPORTANCE OF BETA FOR INVESTORS

Are you prepared to take a loss on your investments? Many people are not, and therefore opt for investments with low volatility. Some people are willing to take on additional risk provided that they receive increased reward. It is very important that investors have a good understanding of their tolerance for risk, and then know what investments match their risk preferences.

Investors who are very risk-averse should put their money into investments with low betas. Utility stocks and Treasury bills are examples of investments with low betas.

On the other hand, those investors who are willing to take on more risk in the hopes of greater returns may want to invest in stocks with higher betas.

Using beta to measure volatility will help you choose those securities that meet your criteria for risk. But how is beta calculated? Where can you find beta calculations? You will learn the answers in our next section.