Broker Check

Life is taken another one of those detours.  Last year I was diagnosed with pancreatic cancer.

My practice has moved to Matt McIntosh at 832-268-3596 or cell 713-964-2622.  Very sharp guy.  He is a Certified Financial Planner (CFP) and he and his wife both graduated from TAMU.

If you have any questions please give me a call at 979-255-2355. Thanks, Royce

4. Understanding Risk in Retirement

What the heck is RISK? 

Simply - The likelihood and SPEED at which you can lose money!

YOU have a Risk Number!

Every investor should know & understand their number.

The key innovation of Riskalyze is based on the work of the 2002 Nobel Prize in Economics winning behavioral psychologist Daniel Kahneman, whose “Prospect Theory”** showed that people often do not make decisions solely to maximize economic utility. People in thought experiments will often give up a free benefit in order to deny others from getting a greater benefit if it seems unfair.

Most folks hate losing more than they like winning. We’re complicated, emotional creatures, especially when it comes to money.  

Aaron Klein (company co-founder) says that risk tolerance is often misunderstood. “It’s not how scared of risk an investor is,” he observes. “It’s how far one’s portfolio falls before they capitulate. This kind of decision making often causes people to sell low and sit out the recovery.”

Historically, investors’ risk tolerance was determined mostly through age-based stereotypes, gut instinct and surprisingly subjective questions such as “Do you get a thrill out of investing?” and “If your investment were a car, what kind it would be?” Klein and his team set out to develop a more quantifiable assessment using questions such as “Suppose you had $100,000 to invest. Would you prefer an assured gain of $10k or risk losing $30k for the chance to gain $50k?” Those surveys, along with beefed-up analysis tools for assessing an investment’s actual risk, were baked into a software platform that indexes both investor risk tolerance and investment product riskiness on a “one to a hundred” scale. Using Riskalze advisors are frequently surprised at how misaligned peoples’ portfolios are with their true appetite for risk.

So, let's make this risk thing understandable. For that, we're going to use an independent third-party to evaluate all of our questions about risk in the market. It is based on the work of the 2002 Nobel Prize in Economics winning behavioral psychologist Daniel Kahneman, whose “Prospect Theory”** showed that people often do not make decisions solely to maximize economic utility. It is called Riskalyze.

CLICK HERE to download a PDF explaining Riskalyze with more detail

Riskalyze works just like driving a car. The faster you go, the quicker bad things happen and you increase the likelihood you may end up in the ditch. The S&P 500 runs at about 75 mph and the Dow runs about 70mph. These are cruising speeds for a lot of younger folks. But, once you lose control, it’s really tough to get back on track. In retirement, most folks drive slower and your Investments should to. There is a good reason.

So what do I do? I take all my clients on several “Portfolio What-If’s” Has your advisor “What-If’d” your retirement portfolio? As I use different investment strategies, alternative investment options and you will begin to understand the actual “riskiness” of various investments.

Understanding The Riskalyze Portfolio Metrics

In Riskalyze you get an overall "risk number" for your portfolio. As that risk number increases the potential risk, return and volatility of your portfolio also increase. For you the investor, this has become an industry standard, non-biased, independent third-party way to assess various portfolios. It's not my opinion, Fidelity's opinion, Vanguard's opinion or your brother in law's opinion!

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 investors. Investors get frustrated and confused when bombarded with standard deviations, Sharpe ratios, and scatter plots. It’s not that investors have too little information, the problem is that they are overwhelmed. The Risk Number boils all 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 the next six-month period.

Now, drop down a little bit and look at the 95% probability for the next 6 months red and green percentages.  Again, as you will come to expect, you will see that as the risk number increases so does the potential for loss and reward. Notice also whether it's a $10,000 account or $110,000 account the Riskalyze metrics, relative to the portfolio it is evaluating, are consistent.

Next is one of my favorite parts. The Riskalyze GPA! This is the Grade Point Average of your portfolio plus a little more. Unlike your college GPA that topped out at 4.0 the Riskalyze GPA tops out at 4.3. We will consider 4.1 to be cum laude, 4.2 to be magna cum laude and 4.3 to summa cum laude. Whenever possible I always try to build my portfolios with honors!

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.

In layman's terms, it gives you an assessment of your student's (your portfolio’s) comparative performance relative to all the other students in the school. In this case, all the other students in the school are all the thousands of portfolios that Riskalyze handles. For instance, increased annual dividends or a lower expense ratio would be like like a student that has handed in more extra credit projects to help them stand out. That's what you want, an outstanding portfolio!

Potential Annual Return. Not much new information here, this acts just as you would expect. As you take on more RISK your potential annual return will normally increase.

Annual Dividend. Now things start to get interesting. Some portfolios are like the Fast and the Furious - no time to sit still insured income all their energy is going into appreciation. Other portfolios or more biased toward shifting income to the investor rather than trying to appreciate in value. Examples of this might be high dividend paying stocks and of course the fixed income you can get from bonds.

Expense ratio. I always pay special attention to this area. Off and I will meet with folks that have what they feel is a low fee from their advisor but lo and behold their portfolio is loaded with high expense ratio Investments. The wise investor knows that you have to add the advisor's fee and the portfolio’s internal fees together to find out how much fee you are actually paying.

At this point, you can have a really good idea about what you're invested in and more importantly what are realistic expectations for your portfolio.  

Have you ever had that peace of mind before?
You can and it's easy!  CLICK the button below to find out YOUR number.

Investment Risk in Retirement

Job number one. Let me say that again. Job Number One and most important is to understand RISK! What is your true tolerance for taking risk and what is the real risk of any investment you're considering? Most folks I meet with have no clue the high level of risk that's in their portfolios, 401ks, IRAs, etc. Case in point, as the old joke goes, “many folks with 401k’s in 2008 ended up in 2009 with 201k’s”. They had no clue! But that's really not a joke, as you know, it crippled the well-planned retirement lifestyle for a lot of folks.

They had way too much risk because they did not know how to gauge it. No one told them any different, so they just did nothing. “Ignorance of the RISK is no excuse.” You get the point. For the last 10 years, we've had a Bull market. When will we cycle down again? You don’t know, I don’t know, no one knows. So, what’s your plan for the next downturn? It’s your future. What will be your excuse, after the fact? Can you spend some time NOW to understand your options? I hope so!


Right now - do you understand your true level of risk?

No?  So, how the heck do you know where you are headed financially in retirement?

You can have an “I hope, I wish” retirement or one you have made some smart, informed decisions about that will increase your chances of success. Your choice - are you smart or not so smart?

It is simple to get started.  Just click the button below.

Wouldn't it be better to have a profession 3rd party give you the TRUE level of risk you and your spouse have in your current portfolio?

  1. Most folks think they have a Conservative portfolio.  Most do NOT!  Would you like to know for sure?
  2. Right now you have no clue how "risky" your portfolio is or what the risks are. Want to change that?  
  3. Would this evaluation be a better measure of your future retirement income risk than someone’s opinion?
  4. Would you sleep better knowing this important piece of your retirement planning was not left to Uncle Joe's, your neighbors or an advisor's opinion or chance?

If you answered “Yes” to any of the above questions then commit to your next step.

Get a FREE Portfolio Risk Analysis.  Does your risk level match the risk level or your current investments?  

Call us at 979-820-4281 or start by getting your Risk Number today.

Understanding YOUR Risk Tolerance is a critical step on your way to a true “Peace of Mind” retirement plan.  Less worry when your 85 is a GOOD thing!

Want more answers sooner?  Then schedule an online session with Royce.

Investment advisory services offered through Brookstone Capital Management, LLC. (BCM), a Registered Investment Advisor. BCM and Royce Financial are independent of each other. Any guarantees mentioned are backed by the financial strength and claims-paying ability of the issuing insurance company and may be subject to caps, restrictions, fees and surrender charges as described in the life insurance or annuity contract. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation. The content of this website is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. Investments and/or investment strategies involve risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives.

Royce Bordman and/or Royce Financial are not affiliated with or endorsed by the Social Security Administration or any other government agency.