If you have met with a financial advisor, and upon concluding the meeting felt things were a bit "cookie-cutter," you are not alone. Many advisors, particularly when it comes to risk tolerance, have a proclivity to stereotype clients based on their age. Follow-up questions often lead to classifying risk tolerance in very overused and oversimplified terms like "conservative," "aggressive," and "moderately aggressive."
What Is RiskalyzeRiskalyze provides advisors with a streamlined and tangible way to measure risk tolerance. The service was founded on the belief that any investor's risk tolerance can be quantified in a single number, which allows advisors to create a portfolio that matches the investor.
Why Risk MattersReturns are often the focus when discussing investments. But savvy investors know that the how is just as important as the end result. There are innumerable investing strategies. And there will never be a shortage of edgy advisors and investors who believe that their strategy is the panacea for anyone looking to make a profit. Regardless of what stock or index proves lucrative, the type of investments an individual chooses, and the amount they invest, always comes down to one thing: risk tolerance.
Risk tolerance has a wide variety of influential factors. One of the most important is age. While an older individual may have more money to invest due to more years of investing and compound interest, they may be at the end of their accumulation phase, and thus unwilling to roll the dice on something potentially volatile. Younger individuals still have decades before retirement, and can afford to recoup any losses incurred from more volatile risks.
How Does Riskalyze Work?Riskalyze starts with a quiz, which should take less than five minutes. Upon completing this quiz, the individual is given a number that reflects their risk.
Displaying a client's risk tolerance as a number allows them to see their risk tolerance, compared to the risk they are actually taking. For example, if a client's risk number is 34, but their current portfolio's risk number is 68, they will need to temper their portfolio with more conservative investments to reflect their current risk tolerance.
The analyzed data is then turned into a projection of what the probable returns of the uploaded portfolio will be, along with a range of expected returns over the next six months. This range, with a 95 percent statistical probability, is given in both percentages and monetary amounts.
With so much analyzed data being put into quantifiable numbers, it is hard for subjective errors to be made based on the advisor stereotyping clients by age and presumed risk tolerance.
The Award-Winning MathThe concept of Riskalyze is fantastic, but how is it possible, and is the math correct? Riskalyze is the world's first Risk Alignment Platform. The platform was built on the framework known as "Prospect Theory," which won the 2002 Nobel Prize for Economics.
Why It MattersAs of 2021, nearly 40 percent of Americans used a financial advisor, and this number only continues to climb. In other words, many Americans are placing everything from retirement accounts to money market accounts in someone else's care.
With this comes the assumption that their advisors understand their needs and expectations. After all, an investment timeline often spans several decades. Within these decades, many changes are likely to occur, along with shifts in risk tolerance and attitudes towards money. Numbers are objective, and advisors should be objective as well, when evaluating a client's risk.
While the Riskalyze platform is not going to tell you which stocks to invest in so you can become a millionaire, it will mitigate unnecessary speculation and subjectiveness when determining your risk profile.
Many firms and investment advisors have adopted Riskalyze (you must be a registered advisor or affiliated with an accredited institution in order to use the software). Yet many advisors still assess client risk the old-fashioned way. Monotonous questionnaires with limited answers were perhaps once the best way for advisors to evaluate a client's risk and build their portfolio, but the future is here.
Remember that you are not married to your advisor. They work for you. Your advisor should have your best interests in mind, and use every tool available to better serve you. After all, if you were in the market for a new doctor, you would want them to be up to date with new technology and information, as opposed to someone who still uses leeches for bloodletting.
The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.