Risk Indicator

If you’ve been investing for a while, you probably have an idea of your risk level. Unlike other risk calculators that focus on just risk questionnaire, MTC’s risk indicator is based on a balance of macro goals and risk preferences – life is about give and take. It may also give you some additional items to consider that may impact your assumptions of risk levels.

Estimating Goals Driven Risk Indicator

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Disclosure

The above risk indicator is hypothetical and for educational purpose and not an investment recommendation. It should not be used as a primary source of your investment decision. Select your asset allocation carefully after weighing in all pros and cons, which would be difficult to list for any personal situation. It is not a financial advice and consult with a financial advisor prior to portfolio implementation. The calculation methodology is subject to change.

Interpretation

This MTC risk indicator is an estimate based on a balance of your macro goals and risk preferences. It has a range of 0 to 100% and can be interpreted as the amount of “risk” or market exposure or equity level. Traditionally it also has the following asset allocation designations: Stable (cash equivalent): 0% | Conservative: 20 – 40% | Moderate: 40 – 60% | Aggressive: 70 – 90% | Aggressive All Equity: 100%.

Close to zero or negative indicator means you should not be investing in the market even at the expense of loss of purchasing power long-term – you may want to consider insured products through our Affiliate. A reading above 60 is considered aggressive.

Role of Risk Indicator

Traditional investing approach of “appropriate” asset allocation is highly subjective. The “appropriate” asset allocation is meant to deliver maximum returns for a tolerable level of volatility over a given period of time. Hence the “appropriate” asset allocation only becomes obvious in hindsight since no two market corrections or investor experiences are alike. Even when we can’t guess the future, we feel we should. So investors are left to decide on an asset allocation based on their experience and future outlook. It is common that investors’ tolerance for risk rises with the market and vice versa. To neutralize this effect, one could start with their age as a starting point (i.e. forty year old can begin with 60% equity and 40% fixed income). To further refine, you would then add or subtract to equity or fixed income based on above factors. From a long-term planning standpoint, savings and asset allocation have a far greater impact on nest egg than security selection.

This indicator is effective for long-term investing using core, strategic allocation – periods that span full peak to peak market or economic cycles. The indicator is less meaningful for tactical, satellite or alternative strategies unless used as a “maximum pedal” for variable risk strategies.

Key note about risk tolerance, if you want to bail out after only a moderate dip, you probably shouldn’t be investing in the first place. Even conservative goal of wealth preservation requires some risk where an effective wealth preservation solution seeks to preserve the purchasing power of wealth long-term.