Want to know what makes Riskalyze tick? There are a few fundamental components. Today, we’ll discuss the component most central to your client’s success—the Risk Number.

The Risk Number® is an objective, quantitative measurement of an investor’s true risk tolerance and the risk in a portfolio. Our patented technology calculates risk utilizing a scientific framework that won the Nobel Prize for Economics, and is a more efficient way to discuss risk with a client than subjective terms like “moderate” and “aggressive.”

Understanding the Risk Number is simple, which makes it an invaluable resource for advisors. Clients get frustrated and confused when bombarded with standard deviations, Sharpe ratios, and scatter plots. It’s not that clients have too little information, the problem is that clients are overwhelmed. The Risk Number boils that complexity down into understandable terms—it is a simple way to communicate what percentage of potential downside risk a client is comfortable with over a six-month period.


Potential Downside Risk Risk Number
0.00% 1
-1.50% 20
-5.50% 35
-9.50% 50
-15.00% 70
-20.00% 85
-25.00% 90
-35.00% 95
-40.00% 97
-55.00% or lower 99


To determine a client’s Risk Number, advisors either use one of Riskalyze's risk assessments, or they simply set a risk target if they already know the client well. Choosing an assessment style is a matter of preference—the Simple Questionnaire is shorter and offers choices between varying amounts of risk and reward, while the Detailed Questionnaire asks a few more questions and offers choices between certainty and uncertainty.


Once an advisor has determined an investor’s Risk Number, they can choose one of our Risk Number model portfolios to match, import one of their own model portfolios, or build a unique strategy for the client. By building a portfolio whose aggregate downside risk potential aligns with the client’s risk tolerance, an advisor can set clear expectations and serve as a behavioral coach during market volatility.

The beauty of the Risk Number is how it empowers investors to stay the course during the short term so they don’t lose sight of the long term. We believe all long-term investors are made one short-term decision at a time, which is what makes our six-month probability range so effective. When the market dips, the Risk Number reminds a nervous client that they’re still within their risk tolerance.

Equipped with the Risk Number, advisors can focus the conversation on the client’s biggest fear—suffering losses—and turn that into the confidence needed to make the right decisions. The Risk Number empowers fearless investing by quantifying something as complex as an investor’s unique emotional reaction to risk and presenting it with the simplicity of a single number.

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