Overview
We review your managed portfolio’s risk assessment yearly to ensure you’re on track to achieving your goals. This is our opportunity to give you an updated recommendation if you’re getting closer to your goal, or your information or goals have changed.
We'll send you and email and you'll be prompted in the Wealthsimple app when it's time to complete your risk assessment.
What is a risk assessment?
Risk assessments give us a snapshot of your current financial situation so we can select the most ideal portfolio for you. We'll recommend a portfolio that provides the highest likelihood of success by the time you need to access your money.
A risk assessment looks at your household financials, your goals, and how important it is to achieve them within a set time frame and your comfort with price fluctuations. A successful portfolio would have a good range of outcomes for the goal that you have. We want to help you avoid poor outcomes that prevent you from achieving your goals. The riskier the portfolio, the wider your range of outcomes tends to be.
We consider four risk dimensions in your assessment:
- Portfolio risk
- Risk required
- Risk capacity
- Risk tolerance
Learn more about each of the risk dimensions.
We'll recommend a portfolio that meets your goals
You want a portfolio that has a high likelihood of meeting your goals, whether it performs near the top of the expected range of outcomes or the bottom. See the graph below as an example:
Graph description: Range of returns assumes historical standard deviation and long-term cash rate and Sharpe ratios. Likely performance reflects returns between the 35th and 65th percentile. Less likely performance reflects returns between 10th and 35th percentile and the 65th and 90th percentile. Wealthsimple returns are based on performance composite and are shown net of fees. Past performance is not indicative of future performance.
What information do you need for me?
We collect the following information to make an accurate assessment:
Household financials
Household financials include
- your income,
- current savings,
- the value of your assets, and
- the value of your debts.
Your income tells us what tax bracket you’re in, and helps us make your portfolio tax-efficient.
The value of your savings, across all bank and investment accounts, tell us whether you can support yourself in case of an emergency. This can impact your capacity to take on risk.
The value of your assets and debt tell us whether you’re in a position to take risk based on how much you’ve borrowed and need to repay. Investing is not a good idea when you have high-interest debt because your money should be going towards paying down your debt. An investment portfolio is unlikely to provide a better consistent return than the ongoing cost of your debt, which also limits your capacity to take risk.
Account goals
Your account goals are what you’re saving for and when you’d need to take the money out to spend it on this goal. This also tells us how much risk you need to take to achieve your goals.
If an investor has a long-term goal to maximize wealth, they tend to need more portfolio risk because expected returns are higher, and they accept the lower end of the expected outcome.
If an investor has a goal of ensuring that they can make a specific payment in the short term and they are on track to have saved most of the money required, they would tend to need a less risky portfolio.
Many investors approaching retirement still need to take on risk to meet spending goals. This is because they will hopefully have a long time to spend the money they have saved.
Risk tolerance
Investing can be unpredictable. Ups and downs are inevitable. Your risk tolerance tells us your willingness to withstand negative portfolio outcomes without making a panic-based investment decision.
Our data suggests that most investors are able to withstand portfolio volatility and stay invested. But, some make damaging decisions, for example exiting the market after a loss. These kinds of decisions can hurt long-term outcomes, so we try to help investors assess their ability to withstand these outcomes.
We offer a lot of support for investors through the emotional process of withstanding volatility. We also offer lower risk portfolios to investors who don’t believe they can withstand market volatility. The best portfolio is one that you can stay invested in.
More experienced investors may consider how they have handled losses in the past and what they have learned along the way to predict their future behaviour.
Review your recommendation
Once you’ve updated all your information, we’ll make new portfolio recommendations that align with your goals at this point in time. If your risk assessment is more or less the same as the last time you took it, you might receive a recommendation to keep your portfolios as-is.
What if I want to change my risk level or theme now?
You can change your risk level or theme at any time. You don't have to wait for the risk assessment to make a change. To change your risk level or theme, follow these instructions.
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