Measuring risk can seem tricky, but here are some simple ways to get started:

Volatility: This is how much the price of an investment goes up and down. High volatility means higher risk. Think of it as a rollercoaster ride—more ups and downs make the ride riskier.

If you’d like to dive deeper, you can measure volatility yourself, using such approaches as (1) standard deviation and (2) beta.

(1) Standard Deviation

Let’s say you have two investment options, and you’re trying to decide which one to choose based on their risk and return characteristics. Both investments have the same average return of 8%, but their standard deviations are different. Standard deviation measures how much an investment’s returns can deviate from its average return. A higher standard deviation means more variability and, hence, higher risk.

(2) Beta

Imagine you’re an investor considering adding a tech company’s stock to your portfolio. To understand how risky this stock is compared to the overall market, you look at its beta.