How Much Risk is in Your Portfolio?


According to behavioral finance studies, people are two times more concerned about preventing losses in their investment portfolio than they are with potential gains. Fear of losing the money they have worked so hard to save can make people do one of two things that can have a disastrous result on their investments and ultimately on their long term financial goals.

The first is falling into the buying high/selling low cycle. When the market is going up, up, up people often start shifting their portfolio allocation, increasing their exposure to stocks. Then when the market corrects, they may stay the course for the first 5% or 10% drop but once they hit their "pain point," they sell their stocks and take a loss. The cycle continues when they wait to buy back into the market until they see the market going up, up, up again.

The second mistake some people make is to stay out of the market all together. They won't see any chance in their bank balance which can be comforting but over time, the purchasing power of their money decreases thanks to it not keeping up with inflation. For example, let's say they have $100,000 in a checking account earning 0% interest while inflation is 3.2%. In five years the actual purchasing power of the $100,000 is just $84,991.75. Clearly sitting on the sidelines is not a good option.

What if I told you that it's possible to know that your portfolio will perform within a given up and downside range, over any 6 month period, 95% of the time? That would give you peace of mind and make it a lot easier to ride through the ups and downs in the market. Well it is possible thanks to a new to I use with my clients, Riskalyze.

Built on a Nobel Prize-winning framework, Riskalyze quantifies the semantics of the financial advice industry, replacing confusing and subjective terms like "moderately conservative" and "moderately aggressive" with the Risk Number, a number between 1 and 99 that pinpoints a client's exact comfort zone for downside risk and potential upside gain. This allows their advisor to then build an investment portfolio to match the client's Risk Number and chart a clearly defined path to the client's goals.

The process is simple. First, answer a questionnaire that calculates your Risk Number. We can then analyze whether your current investment portfolio matches your comfort zone. If it doesn't we can build you a custom portfolio that does. Lastly, we can stress test the portfolio so that you can see how it might perform during an up market, rising interest rate environment or how it would have performed during the financial crisis.

No one should lose sleep over market volatility or find themselves in the buying high/selling low cycle. That is why I use Riskalyze to help ensure that my clients are invested in a portfolio that will perform within their comfort zone. Take the first step and use this link to calculate your Risk Number today. Calculate your Risk Number