Riskalyze GPA™ is a quantitative expression of the efficiency of an investment, strategy or portfolio with respect to how much return is realized or expected per unit of risk. This clearly demonstrates, in a single number, the relationship between expected performance and expected downside risk over the next 6 months. The primary drivers of the Riskalyze GPA™ include returns and downside risk, but GPA also takes things like dividends and expense ratios into consideration.
The power of the Risk Number ® lies in the conversation that it facilitates between advisors and their clients. When instincts push a client to focus on returns, the Risk Number® simplifies a difficult conversation around the relationship between risk and reward, making it easy for a client to understand the importance of investing within their comfort zone. However, those instincts to focus on returns don’t just disappear. When framed appropriately, returns do (and should) matter.
A simple review of starting and ending balances doesn’t tell the proper story. It’s critical when discussing returns to frame those figures in relation to the amount of risk a given investment strategy or portfolio is taking on. The challenge with risk-adjusted returns is in the presentation, which is where the Riskalyze GPA™ shines.
Discussing Riskalyze GPA with Clients
Research tells us that more often than not, investors have more risk in their portfolio than they want or realize. In those cases, the Risk Number ® is transformative to the conversation around risk alignment. For those cases where prospects are invested in alignment with their risk tolerance, Riskalyze GPA™ gives advisors a way to clearly and simply differentiate their investment strategy.
Clear communication in this instance is crucial. Just as the conversation around risk tolerance is underserved by standard deviations and generalized risk buckets, the conversation around risk-adjusted returns is one that advisors have quite clumsily with their clients. The Riskalyze GPA™ solves this problem by allowing advisors to meet their clients where they are, presenting the concept of return efficiency in a manner that is approachable and easily interpreted, while robustly incorporating internal expense ratios and historical risk and return statistics under the hood.
Pro Tip: Market assumptions are taken into consideration when calculating the Riskalyze GPA™ of a given portfolio. If your capital market assumptions include a rising interest rate environment ahead, the Riskalyze GPA score will incorporate that outlook.
What does "GPA" stand for? Is that similar to a Grade Point Average?
Yes, the acronym itself stands for Grade Point Average, and our goal is to provide advisors with another way to prove their proposals are "making the grade".
What are the high and low points of Riskalyze GPA™?
Riskalyze GPA™ scales from a 1.0 on the low side and 4.3 on the high side. You can consider anything above a 3.5 to be "at the head of the class".
Why is 4.3 the highest GPA and 1.0 the lowest?
We intentionally chose this range to help your clients understand Riskalyze GPA™. There is a good chance your clients have had, or currently have, children or grandchildren in school receiving grades using a traditional GPA range. Inspired by this range, and LOTS of advisor feedback, we concluded that a range of 1.0 - 4.0 clearly communicates the return efficiency of your client's investment portfolio. Why the opportunity for 4.3 then? Well, in our analysis we found that some portfolios offered a bit more "extra credit" that we wanted to account for, so we extended the range to 4.3.
Can you describe Riskalyze GPA™ in a single paragraph?
Sure thing! We created the Risk Number® specifically to make understanding and quantifying risk accessible for clients. Riskalyze GPA™ centers around making return efficiency accessible to your clients so you don't have to try and explain industry standard measurements of risk-adjusted returns. Riskalyze GPA™ levels the playing field to help you explain why your Risk Number® 65 portfolio recommendation, is a better option than their existing Risk Number® 65 portfolio they built themselves. Not all Risk Number® 65 portfolios are created equal and now with Riskalyze GPA™ your proposals can stand apart from the crowd.
Is there a white paper on Riskalyze GPA or a breakdown on how it is calculated?
Great question! Riskalyze GPA™ is a proprietary calculation made up of industry standard measurements of risk-adjusted returns. At a high level, it calculates the return efficiency based off of expected return and a stated level of downside risk. Any additional information we provide will be announced via our blog: https://www.riskalyze.com/blog/.