Welcome to Money for the Rest of Us.

This is a personal financial on money, how it works, how to invest and how to live without

worrying about it.

Remember who's David Stein today's episode 405?

It's titled When volatility rises, Financial Things Break.

Volatility measures how much a security or asset class deviates from its average.

That could be the average price or it could be the average return over time.

A stock or an ETF is more volatile if it experiences greater swings in price.

A stock or an ETF or an asset class is more volatile if it's daily, monthly or annual return.

Deviates significantly from its average, it could be a very high return, it could be negative

returns but it's a measure of volatility and in finance the statistical measure used

most frequently to measure volatility is standard deviation.

Standard deviation is the foundation of modern portfolio theory if you've ever had a financial

plan or an asset allocation plan prepared for you by a financial advisor or even using

some type of online planning tool, often times they'll show what's known as an efficient

frontier and they'll show different portfolio mixes that maximize the expected level return

for a given level of volatility and that volatility used is the standard deviation.

In a recent editorial in the Financial Times, Eric Lonergan who is a portfolio manager

and author wrote the biggest structural change in investor behavior in the last 30 years

is the near universal adoption of volatility as a measure of risk.

When I read that editorial I was somewhat, well I was curious about what he meant and started

researching more because I know as I've done asset allocation studies over the years,

...