mutual funds that will help a client meet his /her investment goals. One of the criteria we always have to consider is the client's risk tolerance which is the amount of risk you are willing to accept investing in the markets in order to achieve a higher rate of return.

Why you ask do we always hear this statement? The answer is really quite simple. Many elements of risk come into play when investing in the open stock markets. Risk that your fund of choice will tank, risk that the stock markets will not perform as expected, risk that the fund itself will go out of business. Shrewd investing is not derived from hoping things will go right, but rather researching yourself if you are so inclined, measuring, weighing outcomes and working with a financial advisor to know all of the mutual fund facts. Only then can you make an informed decision when spending your hard-earned money.

Standard Deviation and Beta: Yes, what are these items anyway? If you dislike statistics, tune out here.

These are mathematical ways of measuring how a mutual fund performs against other like-kind funds, otherwise known as its peer group. Measurement of risk places emphasis either on the extent to which the mutual fund's rate of return varies from the average return, or on the volatility of the rate of return relative to the return on the market itself.

Thus, the variability of the return is measured by a statistical concept called standard deviation. Volatility is measured by the Beta Coefficient.

There is a famous test that involves dropping marbles through a tiny opening in the middle of a square glass box. Inside the box, there are rows of wooden channels. In theory, as the marbles are dropped in through a tiny hole in the middle of the box, they should all fall into the middle row, but they don't.

They arrange themselves all across the rows until when finished, the result is an inverted ?-shape of marbles with the most marbles (the averages) in the middle. You can run this test time and time again and it will turn out exactly the same.

This one of the law of numbers that shows how a group will cluster around the average. And readers, it works the same for numbers in investments.

Some funds achieve the same performance but are less volatile than the average and more consistent in their rate of return over time. Is this important? You bet, because we know that these funds generally are a better choice.

So what would you buy? If your financial advisor can help you purchase a fund that achieves a same rate of return for a lower amount of risk than another in the same group that has a higher amount of risk and volatility, which would you buy? Please notice that I have not said the highest rate of return, highest not always being less risky.

The standard deviation of the fund we are tracking is about 20 versus the S&P 500 composite of about 16.5; this means more risk for a lower rate of return.

Review our mock portfolio for risk. Finally, take a look at the mock portfolio above, and notice the Beta listings of each stock. Is it not surprising that the most volatile, risky stocks have the highest Beta rating? How high they climbed and how low they fell. Low Beta numbers indicates a much less risky stock.

Well, readers that's enough of a rather complex subject for today. I hope this helped you understand that investing is not an exact science and that you need to use every analytical tool available to make the best choices for your hard-earned money.

Next week, we discuss additional criteria to think about when selecting a mutual fund. Yep, you are right, there are far more things to think about than you thought! Questions regarding this article may be sent to Martha at 234-0290 or Email: marthamyron y northrock.bm