One Number Every Investor Must Know

The most important number for any investor to know is not the level of the S&P 500 or the yield on the 10-year Treasury or any other number related to the financial markets. Instead, to invest comfortably and productively through bull and bear markets alike, an investor must know his or her own personal Risk Number.

What is a Risk Number?

Your Risk Number, calculated using a proprietary algorithm from financial technology company Riskalyze, is a number on a scale of 1 to 100 that defines how much risk you are willing to take to earn investment returns. For example, someone with a Risk Number of 15 is a very conservative investor who is seeking a lower level of portfolio risk along with a lower rate of return. Someone with a Risk Number of 89, however, is a very aggressive investor willing to take on significant portfolio risk to earn higher returns.

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It is critically important for investors to invest in a way that is both comfortable and appropriate for them—thus, to invest according to their own personal risk tolerance. If you don’t, one of two bad things can happen!

  1. If you invest too conservatively for your financial circumstances and tolerance for portfolio risk, you may miss out on the opportunity to earn hundreds of thousands of dollars in investing profits over your lifetime.

. . . on the other hand . . .

  1. If you invest more aggressively than your Risk Number suggests you should, you may become fearful as your portfolio value plummets during the next market downturn and sell your investments near the lows, cementing in significant self-inflicted financial damage.

How to Find Your Risk Number

You can find your unique Risk Number by answering a short series of questions that pinpoint where you stand on the risk-reward spectrum.

Are you a 32 or an 84? Find your Personal Risk Number in three minutes, with this short quiz:

Once you know your Risk Number, you can compare it to the Risk Number of your actual portfolio to determine if you are taking the appropriate amount of investment risk. Many people consistently take more risk in their investments than they should, which is why so many sell out at the bottom of the market. As a courtesy, if you take the Risk Questionnaire we would be pleased to determine the actual Risk Number of your investment portfolio.

How Does Riskalyze Work?

Watch this 90 second video for more detail about how Riskalyze technology works and how it helps investors to stay on track.

Riskalyze Client-Facing Video from Riskalyze on Vimeo.

If you have any questions about how we use Riskalyze to craft portfolios that match the risk/reward levels of our clients, please email us at thoms@orioncapitalmgmt.com or call us at 619-435-1701.

 

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