The Risk Number® is a proprietary scaled index developed by Nitrogen to reflect risk for both advisors and their clients. The Risk Number is at the heart of a sophisticated set of tools to precisely measure the appetite and capacity for risk that each of your clients has, and demonstrate their alignment with the portfolios you’ve so carefully built for them.
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% Historical 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. Nitrogen helps create long-lasting and mutually appreciative relationships for the road forward for investors to see the path forward and, ultimately, achieve their goals.