Last time, I told you how Riskalyze is specifically designed to match how much you are prepared to lose money (risk) in the short term against your long-term goals (returns). I’ll go into that a bit more later, but first let me tell how badly the investment industry has let down ordinary investors.
Advisers simply don’t have the right tools to assess and then manage an individual’s goals in terms of risk and return. It’s got so bad that many investors simply get so disillusioned that they abandon the wealth-creation process altogether.
If you, like me, were stuck in a portfolio at a young age according to a rigidly defined questionnaire, you’re probably disgusted with your returns (or losses) right now. That’s because nobody asked you the right questions to begin with, and nobody revisited your risk and return profile as it changed over time.
As you get more experience in the markets, or your circumstances change (you have a kid, say, or get a fat promotion), you’re prepared to take on more or less risk -- but how often has anybody suggested you tweak your portfolio accordingly? I would guess NEVER.
In my case, I revisited my investment portfolio too late -- my risk profile had changed radically but I was still stuck in a portfolio tailored for “moderate” risk. The returns, needless to say, were pathetic. How I wished then that there was a risk assessment tool like Riskalyze.
The first priority of Riskalyze is to establish your relative ranking (on a scale of 1 to 100) of how much you’re prepared to risk to meet a designated return. What this means, in plain English, is how much money are you prepared to lose in the short term to meet a long-term goal?
Only once you’ve established your risk “comfort zone” can we begin to talk about your expectations for returns. There has to be a middle ground, and Riskalyze helps you find it. We’re not telling you to ditch your financial adviser. Just that Riskalyze will give you both a better idea of your needs and the most practical way to meet them.
I’ve met many people in low-risk, low-return portfolios who basically get bored with the whole process of investment. They lose interest -- mainly because they have a much bigger appetite for risk than they think they do!
Similarly, other people who think they’re in the high-risk zone want to sell when they see their portfolio has lost 15% in the past year. They’re way more risk-averse than they think they are!
The beauty of Riskalyze is that it is a dynamic tool. It can tweak your asset allocation balance when you reach a tipping point in the risk-return spectrum. In other words, it reacts to your risk-tolerance level as your personal circumstances -- and the markets -- change.
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