Riskalyze produces a mean-variance optimizer portfolio based upon your risk tolerance and time horizon as determined by an investment questionnaire.
The optimizer is fed return strings from a group of well known asset classes. An expected return and expected risk, defined as variance, is produced for each asset class using the historical information. Although the past does not always repeat itself, it can tell us how asset classes have behaved in tandem during multiple market environments.
The optimizer generates many portfolios along what is called the efficient frontier. This curve represents the best portfolios which will achieve the highest return for each incremental level of risk. Using your Riskalayze score determined by your answers to the investment questionnaire, the Riskalyze system chooses the portfolio along the curve that best reflects your risk profile and time horizon.
The resulting portfolio is diversified across multiple asset classes to realize correlation benefits so that the returns are steady as compared to each individual asset class and the risk is appropriate for you so that when 2008 repeats itself, you are not calling to say where did my money go.
Vanguard ETFs are purchased to create your diversified asset allocation portfolio. Vanguard offers the lowest cost vehicle investing to replicate well known diversified market cap weighted indices. Over time high internal expenses found in Vanguard’s competitors unnecessarily erode returns.
The Riskalyze process is repeated over time to keep you on track and rebalanced once per year to shift gains from out-performing asset classes into under-performing asset classes. This has the effect of buying low and selling high, one of the hardest things for an investor to do.
Separate from managing to your desired return and risk profile, you have life goals such as paying for your daughter’s college education or purchasing a second home. As each of these goals approaches, we enhance the Riskalyze process by investing a portion of your assets in a low risk stance to increase the likelihood of meeting the goal regardless of the current market.