What does a lower standard deviation indicate about an investment's risk?

A lower standard deviation indicates that the investment's returns are more consistent and closer to the average return over a period of time. In the context of finance, standard deviation is a statistical measure of volatility, which represents how much the return on an asset can deviate from its expected return. Therefore, when the standard deviation is low, it signifies that the investment's returns have less variability, resulting in a more predictable and stable investment.

Investors often seek to minimize risk while maximizing returns. A lower risk is generally preferable for those who are risk-averse, as it suggests that the investment will likely yield more stable returns without extreme fluctuations. As a result, a lower standard deviation is associated with lower investment risk, making it a desirable characteristic in many investment strategies.