What is the best way to measure a fund’s overall risk?

After all, measuring risk isn’t easy. Conventional formulas are complex and clumsy. And their values change daily.

I was so dissatisfied with the standard risk-measuring tools that I took a dramatic step: I developed my own measure of a fund’s risk. It’s called Maximum Cumulative Loss, or MCL for short.

(To learn more, read How Much Can Your Mutual Funds Lose?)

What this means is that one simple number tells you what a fund’s absolute greatest loss has been during any specific period.

So you know precisely how risky the fund is. It’s especially helpful to use when you’re comparing one fund to another to decide which to buy — or sell.

For example, Information Technology Index has a Maximum Cumulative Loss of -81.2%. U.S. Growth has an MCL of -70.6%.

I don’t know about you, but I consider a loss of 70% of your portfolio to be an unacceptable risk — especially when there are high-performing alternatives that carry MCLs of less than half that.

You can easily check the MCL of ALL Vanguard funds simply by accepting a two-year risk-free trial of The Independent Adviser for Vanguard Investorsand getting your FREE copy of The Independent Guide to the Vanguard Funds. Click here to join today.