THE IMPORTANCE OF BETA FOR
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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
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.