24 Jul 2019

Driving Alignment

Understanding personal risk perspectives gets clients closer to their goals

Strides in technology make for richer risk assessments.

A large part of a successful wealth portfolio is having a solid understanding of risk. Many people, however, are inherently unaware of their ability to bear risk, or how they tolerate volatility, or typically behave during market fluctuations—and, most importantly, how their investments are allocated to reflect these perspectives of risk.

We believe risk tolerance requires a dynamic process of both quantitative questioning and collaborative, qualitative conversations. Each approach is equally important for getting to the heart of your risk profile alongside your values, behaviours, goals, and aspirations. This risk profile is directly tied to your investment allocation, specifically, your equity-to-fixed-income ratio.

Embracing new technology

We’ve been beta-testing an innovative digital platform designed to enhance risk assessments.

The software’s unique testing platform measures your relationship with volatility across several different variables, utilizing hypothetical scenarios and questions.

For example: Say you want to drive from Calgary to Medicine Hat. Knowing the typical trip is approximately 300 km, ask yourself, how quickly do I want to get there?

Let’s say you answer, ‘two hours.’ Then, it follows, you’ll have to drive 150 km per hour.

We’re basically getting you to think about your behaviour around volatility—in this case, your driving volatility.

So, consider things like: Are you even comfortable driving at such a high speed? Do you always go the speed limit? Or, rather, do you tend to stay just slightly over it, at, say, five kilometres and 10 km per hour? Or, do you determine your travel speed based on your desired arrival time?

You get the picture!

depiction of 'alignment' in asset allocation to client behavioural perspectives of risk
Aligning personal risk perspectives to portfolio investment allocation gets clients closer to their goals {Photo Credit: Shutterstock, 2019}

Essentially, it presents a 360-degree personal depiction of your risk tolerance. Your responses will provide us with a better perspective of risk, and help to establish a clearer picture around things such as:

  • How much risk do you want?
  • How much risk should you have in your portfolio?
  • How much risk do you need to reach your goals?

Risk tolerance has a major impact on your financial plan. Understanding where you stand in terms of risk, helps us look past short-term market fluctuations toward your long-term goals.                     

Brent Pickerl, President and Co-Founder, Sandstone Asset Management Inc.

We feel this is all pretty exciting stuff. Above all, it’ll add clarity and create continuous discussion around your investment allocation—and how to reach your investment goals with appropriate volatility.

The testing feature of this new digital platform complements our current holistic planning process and is a great tool for inciting dynamic discussion around both your portfolio allocation and risk profile. We look forward to sharing this content with you soon and continuing the discussion. Stay Tuned!