The Risk Number is a proprietary scaled index developed by Riskalyze to reflect risk for both advisors and their clients. Shaped like a speed limit sign, the Risk Number gives advisors and investors a common language to use when setting expectations, recognizing risk and making portfolio selections. Just like driving faster increases hazards, a higher Risk Number equates with higher levels of risk.
One of the most important drivers of the Risk Number is the measurement of downside risk: either the downside risk in the investor’s comfort zone (the range of risk to reward that they approve via the Risk Questionnaire or Risk Target), or the downside risk in a portfolio as measured by the 95% probability range.
Here are a few examples of the relationship between downside risk and Risk Number:
- Downside of -2%: Low 20s
- Downside of -5%: Low 30s
- Downside of -7%: Low 40s
- Downside of -12%: Low 60s
- Downside of -18%: Low 80s
Our advisors typically consider Risk Numbers to be in alignment when they are within 5-10 points of each other. Therefore, a Model Portfolio with a Risk Number 45 is often used for clients ranging from 40-50, unless the advisor offers another model that is closer to the client's Risk Number.
The Risk Number builds and deepens client-advisor relationships. A common language is created with specificity to remove ambiguity. Riskalyze helps create long-lasting and mutually appreciative relationships for the road forward for investors to see the path forward and, ultimately, achieve their goals.