Standard Deviation

Fidelity Investments defines standard deviation as a "measure of how much a return varies over an extended period of time. The more variable the returns, the larger the standard deviation... A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how an investment actually performed, but it does indicate the volatility of its returns over time. Standard deviation is annualized."

As financial definitions go, this is pretty good -- but it's still Greek to most non-professional investors. Here's a simpler explanation:

There are two families, Family A and Family B. Both have three children. The Family A children are ages 10, 12, and 14. The Family B children are ages 2, 12, and 22. So in terms of the mean and median ages, the two families are identical. However, in terms of variablity of the ages, the families look quite different. Without getting into the mathematics of it, Family A has a standard deviation of 1.63 while Family B's standard deviation is 8.16. I still can't do the math on my own -- and you will never need to -- but now you'll never forget what standard deviation is all about.

Hardy souls who wish to calculate standard definition on their own can use this formula: