How do I determine my risk level for Robo Advisors?

Note the key work here is “should” not “is” and not “must”.

This the the comment I always make for everybody. Do what you are comfortable with and not what people tell you. The comment is just a sweeping statement made for reference. It will not take into account your personal situation.

Just ask your self this question. Are you ok to risk losing all your money persuing the possibility of higher gains? If yes then you can go for the highest risk.

Personally, i find using 1 risk level to measure all your investments really unwise, I split my risk levels into different portions. I.e. a certain % for high risk high gains (lose 50-100% also won’t blink) this % for mid range.... (stable companies with dividends) then another % for bonds. I suppose this is what diversification is about.

Just find it really uncomfortable that Advisors are just using a blanket risk level for your whole portfolio. A better description I feel would be “what is your risk level for this portion of your portfolio.”

Dear Anonymous

To fully understand your risk level, you have to determine 3 factors

1. Your need to take risk

This is determined by your need for returns. If your need for returns is higher, then your need to take risk is higher. Your need for returns is obtained when you do your financial planning to know the returns you need to achieve certain objective.

2. Your ability to take risk

This is determined by many factors - age, health, insurance status, time horizon, investment amount etc.

3. Willingnees to take risk

In the financial services industry, this is determined though a set of questionnaires.

These 3 factors interact with each other to help you determine your risk level. As an example, if your:

a. Need to take risk Is low

b. Ability to take risk is low

c. Willingness to take risk is high

You should really not take risk.

But if your:

a. Need to take risk is high

b. Ability to take risk Is high

c. Willingness is low

Then you might need to be coached to take higher risk because you need to and you can. If you really do not want to, you have to accept a lower return, which means that you might not reach your goals. You might have to accept a lower goal or wait longer to achieve your goal. Coaching can come in many forms but one way is helping you understand what investments is really about. With knowledge, you have more confidence and might be more willing to take risk.

This is why at MoneyOwl, we believe in bionic and not roboadvisory. While we build a high tech platform for you to ascertain your willingness to bear risk, there are times where you might want to speak to our advisers to better ascertain your risk level.

Hope this helps.