Riskalyze has hundreds of thousands of investments built-in for analysis. Sometimes advisors need access to additional options though, such as for SMAs, special annuities, or alternatives. Luckily, Riskalyze makes it easy to build custom investments for analysis in client portfolios. Learn how by watching and/or reading below.
How to Build a Custom Investment
Advisors can use Custom Investments in Riskalyze to add fixed annuities, variable annuities, non-traded REITs, separately managed accounts (SMAs) and any other type of alternative they need to consider. Here's how:
- Open the desired portfolio, and click "Add Investment"
- Enter the name for your investment
Hint: Choose a description that's easily identifiable and will look good on a client presentation.
- Click "Create Custom"
- Enter a dollar amount for the custom investment
- Hit "Enter"
Huzzah! You've just created your first custom investment in Riskalyze. Riskalyze will set a Fallback for analysis, based on the name of your investment. For example, if the word "Gold" is included in the investment's name, Riskalyze will use GLD as the Fallback. Keep reading to learn how to customize the Fallback or even enter custom data for analysis.
How to Configure a Custom Investment
Riskalyze sets a Fallback for each custom investment created. In some cases, it may be desirable to change this Fallback, or to enter custom performance data, so that the investment contributes accurately to the overall portfolio analysis. The following directions are optional and apply only if you do not wish to use the default Fallback.
Click on the name of a custom investment to open the configuration options. The following menu will appear:
Now, enter the desired information to update how Riskalyze analyzes this investment.
Descriptions and details for each option are listed below.
Use a Proxy or Model as an Individual Bond
This menu allows you to change the Fallback to one of your own choosing. Select one of the preprogrammed "Common Proxies" or click "Choose my own Proxy" to use any recognized security currently in the Riskalyze database. If your custom investment is a bond, select "Model as an Individual Bond" to enter your own bond price, coupon rate, and maturity date.
Determine the Worst Case performance for this investment (market loss, deferred sales charges, commissions, etc.) over the next six months. This is where Riskalyze advisors get to use all the data they can find on past performance, and couple it with their beliefs about the future to make a professional prediction.
The prediction can be purely historical, like using an SMA’s historical “worst 6-month peak to trough” provided by a wholesaler (or advisor due diligence). Or you can use a devil’s-advocate-chicken-little-the-sky-is-falling prediction. Or you can use a combination of the historical data, and your belief about the next six months. Again, don’t over-think it, but have a basis for your worst case figure.
Determine the Best Case performance for this investment over the next six months. In the same way as for Worst Case, combine all of the data you can find on past performance, and couple it with your beliefs about the future to make a professional prediction.
Some advisors simply take the average annual return for the investment and divide by two. Other advisors take a more opinionated approach (e.g. “I believe that housing is turning around, and this investment could soar in the next six months”).
Return and Volatility
These update dynamically as Worst Case and Best Case are entered. You may also enter Return and Volatility data directly, instead of entering Worst Case/Best Case.
Tip: To enter return and volatility data under the "Risk / Return Scenario", rather than entering a Worst Case/Best Case:
- Divide annual return by 2 to get the 6-month return.
- Divide annual volatility (standard deviation) by the square root of 2 to get the 6-month volatility.
Frequently Asked Questions
How do I go back to the default Fallback?
The custom investment can be reset back to the default at any time. Click the investment's name to open the configuration menu, and click "Reset" at the bottom left. The investment will reload back to the default.
Why do my investments default to SPY?
Riskalyze looks for keywords in the investment's name to select the most appropriate Fallback. When there are no matches available, the Fallback will be set to SPY. You'll get the most accurate Fallbacks using descriptive words such as Preferred, Government, Corporate, Cash, Money, Gold, Silver, etc.