Although every investment carries some risk, it may be even more hazardous not to invest. An investment's so-called real rate of return is measured in terms of purchasing power, which is the nominal rate of profit growth adjusted downward for inflation. Corporate bonds are long-term, with interest reinvested. U.S. Treasury bills are three-month U.S. government debt, with interest reinvested. Inflation represents the Consumer Price Index.
Standard deviation measures the risk, or volatilty of rates of return.
Ibbotson Associates Return to TOP . The Power of Compounding Getting started with investing as early as possible can make a big difference in how much wealth is ultimately accumulated. The benefits of saving early in life are greatly magnified by compounding. In this process, the growth of an investment's value is computed on the sum of the original investment, including the assumption that dividends or interest are reinvested in the same asset. The amount of wealth accumulated is also substantially affected by seemingly small differences in the annual rate of return.