Risk Tolerance
Empower yourself to be a fearless investor
What is risk tolerance?
It’s the variance in investment return you are willing to take on in order to reach your goals. Maybe you are sacrificing potential gains with an extremely low risk portfolio or perhaps your portfolio is losing too much value because you have unnecessary risk. Test your portfolio and your limits with this abbreviated version of Riskalyze. All Convergent clients benefit from access to the full version available only to advisors.
What is the Risk Number®?
Think of it as a speed limit. It’s a quantified cap for how much risk you are willing to take on. Different people are comfortable driving at different speeds. Maybe on a dry, clear day, it’s okay to go a little faster. But if the weather changes, it might be prudent to slow down. The same is true for risk. Different people gauge investments differently in different environments. We want to help you quickly and easily understand your risk tolerance.
The Risk Number® is an objective, mathematical approach to removing subjectivity by quantifying the risk of investors and portfolios. The Risk Number (ranging 1-99) is calculated based on downside risk.
Why put so much emphasis on risk?
We believe that the investing world is broken. It’s filled with ambiguous terms, such as: conservative, income with growth, moderately-aggressive, etc. These descriptors just cause confusion in the investment world because your definition of aggressive growth is going to be different from mine. Your definition of conservative will be different from the next person’s as well. The vagueness doesn’t benefit anyone. It doesn’t inspire confidence, it doesn’t build trust, and does not set clear expectations.
Another problem is the broad generalizations used to define risk tolerance. Some advisors suggest a portfolio risk level based solely on a client’s age. Younger clients are assigned more aggressive, high risk portfolios while older clients are assigned more conservative portfolios. Because this relies on subjective terms, and it’s a very generic approach to various scenarios, it simply doesn’t work well for everyone.
What Does My Risk Number® mean?
A higher risk number signifies a higher level of potential risk and return. A lower risk number signifies a lower level or potential risk and return. It’s quantitative and based on YOUR views and expectations of investments, not mine. After all, they are YOUR investments, and they should suit YOU.
Specifically, we use Riskalyze to determine how much risk you have, how much risk you want, how much risk you need to reach your goals, and how much risk you should actually have to fulfill that need. In other words, we want to objectively and specifically articulate how much risk you can handle over the short term to hit your long-term objectives. Determining your risk number is the primary way we do that.
If predicting outcomes with 95% probability sounds good to you, get started by trying Riskalyze for free today. Then give us a call and we can see how your risk number compares to what you actually have in your portfolio.
*All CFG clients have access to the full version available only to advisors. We make this simplified version available to you because it's a great starting point for your own investigation.