How Risky is Your Portfolio?
A well diversified portfolio is critical to the long term health of your investments. But how do you know if your portfolio is sufficiently well diversified? While organizing my browser bookmarks this morning I came across an excellent website that helps you do just that: RiskGrades.
To use this website you need to register, but registration is free and takes about three minutes. After you register, enter your portfolio, including ticker symbols and number of shares for your various investments, hit analyze and get ready for some very interesting information.
The website gives your protfolio a risk grade between 0 and 1000, where 100 is equal to a well diversified index of global equities, but that's just the begining. It also tells you how your portfolio benchmarks vs. the S&P in terms of risk, and shows you how diversification reduces your overall risk. Next, click on the risk vs. return chart icon (small graphic icons at the top of the risk chart) to find out if your portfolio is generating enough return to justify your current level of risk. Click on the other chart icons to find out your exposure to various asset classes; to generate charts comparing your risk levels to those of other users and much more. This is a really fascinating site that you can spend a good hour on.
So, how did the Shadox portfolio rank? The risk grade I was assigned was 62 - a well balanced investment strategy according to the site. RiskGrades also tells me that our portfolio is 95% as volatile as the S&P and that diversification reduced our risk grade by 7 points. In terms of risk vs. return, every single one of our investments generated at least adequate returns for the level of risk it generates. All in all, I interpert the results to mean that our portfolio is doing exactly what it should be doing. A big HUZZZAAAHHH!
Check out this site and tell me what RiskGrades is saying about your own portfolio.
Also, if you found this post interesting, you might also be interested in the following previous posts: Are You Diversified Enough; Asset Allocation for March 2007; and Diversifying Into International Markets.