What does stability mean to an investor? why is it important to them?

Stability is not important to many investors. Some like very volitile stocks.

Some investors do like stability. They get very upset if they open the WSJ and see that their darling stock has dropped 3 points the day before. I am not certain that anyone would get upset however if they were to see that their stock went up 3 points.

For investors who are getting on in their years, stability does offer them a sense of well being knowing that they do not have to worry that the assets that they are living off of might loose 30% of their value during the next 6 months. That is why balanced funds are very popular with that crowd. 60-40 bonds and stocks offers some reassurance that 6 months from now they will not have to resort to eating dog food.

Stablity only refers to cautious and risk averse investors. They would only want stability of their investment without much affected by the market changes. Example money-market securities which includeds Treasury bill, bank deposits, certificate of depotsit and commercial paper or even some unit trust fund. It is important to cautious investors as they do not wish to lose money for their investment and want to gain some certain percentage of interest.