Understanding Risk-Adjusted Returns: A Plain English Guide

Two portfolios each return 12% in a year. One did it with the steadiness of a river. The other swung between gains of 40% and losses of 25%, arriving at the same destination by a far more harrowing route. The final number is identical. The experience -- and the risk -- could not be more different. This is why risk adjusted returns explained clearly matter more than raw performance ever will.