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16 August 2018
We have three new portfolios for our General Investing option that have higher exposure to risk compared to our original portfolios. Our original portfolios are now referred to as “Core Portfolios”, and we call the new ones “Higher-risk Portfolios”.
We don’t qualify our portfolios based on expected returns. Instead, we qualify them based on how much risk to which you’ll be exposed. Every StashAway portfolio is defined by the StashAway Risk Index, which indicates the potential loss of the given portfolio. Our Core Portfolios have a StashAway Risk Index between 6.5% and 22%, and our Higher-risk Portfolios have a StashAway Risk Index between 26% and 36%.
To calculate the potential loss of a portfolio in a year, we use Value-at-Risk (VaR). At StashAway, we use 99%-VaR, which can be interpreted as a portfolio having a 99% probability of not losing more than a given percentage of assets in a year. Here’s an example: a StashAway portfolio with $100,000 and a StashAway Risk Index of 10% has a 99% probability of not losing more than 10%, or $10,000 in a year. In other words, there is 99% probability that your portfolio’s value won’t decrease below $90,000 if you select a 10% StashAway Risk Index.
When selecting a portfolio, the most important thing you need to ask yourself is, when do you need the money? If you’re looking at a shorter time horizon (think: 3-5 years), we recommend selecting a Core Portfolio. There are a few things that you should consider when selecting a portfolio. First, if you’re looking to use the money later on (think: more than 5 years from now), then go for a Higher-risk Portfolio. Also, you should also look at your personal attitude toward managing risk: higher-risk means you'll see more swings in the short-to-medium term. Will you be able to stay the course, or will you get nervous and make the mistake of selling when the volatility brings you temporary losses? If you want very few periods with negatives, you should invest conservatively with a Core Portfolio. Remember, you can have as many portfolios as you'd like, so you can have some Core Portfolios and some Higher-risk Portfolios in your account for different goals for different time horizons. (And speaking of goals, our system can help you decide how much you need to achieve a certain goal, and personalise a savings plan just for you. Instead of selecting, 'General investing', select 'Invest for a life goal', and go from there.)
But back to our new General Investing options...
The short answer is: in the long-term, on average, riskier investments will generally give higher returns. The key words in that sentence are “long-term” and “average”. In the short-term, riskier investments are more likely to give lower returns and more losses. To learn more about the relationship between risk, return, and time horizon, check out this article that our Co-founder and CEO, Michele, recently wrote to explain what's really behind the phrase. 'high risk, high return'.
It is our priority to take the necessary steps to minimise the risk borne by our customers. As such, based on the information you provided when filling out your profile, our algorithm capped your risk limit.
If you would like access to all risk levels, there is a short, free online course (will take approximately 2 hours) by SGX that you can take. If you score above 90%, please forward the results from SGX to firstname.lastname@example.org, and we will be able to open up all risk levels for you.