Frequently Asked Questions
IRISKONLINE is structured within follow the AUS/NZ Risk Management process. At it's core, it computes, analyses and helps you to estimate and manage portfolio risk at different levels: a) by overall portfolio; b) by individual securities; c) by industry sectors; and d) by income/growth levels - using risk estimation and decomposition methods - PLUS the online capability to set risk limits; monitor them; and be alerted to any breaches.
IRISKONLINE corrects some major beliefs held by investors:
- reinforcing the fact that %HELD in a portfolio is NOT an accurate indication of the RISK exposure;
- recognising that conventional ideas of DIVERSIFICATION based on Markowitz (1952) are normative and too abstract to provide practical insights;
- traditional ideas about DIVERSIFICATION have very little to do with YOUR individual portfolio and, even in general, are mostly fallacious;
- with the arrival and popularity of EXCHANGE TRADED FUNDS ('ETF') - the arbitrary rules drawn from 'modern portfolio theory' concerning the size of a portfolio are of less relevance than ever; and
- it is the danger of RISK CONCENTRATION that should concern risk averse investors most.
In IRISKONLINE, you set up one or more portfolios of ASX listed securities. These may be actual portfolios you have invested; model portfolios you are considering to invest; and/or strategic portfolios you are modelling prior to implementation; and others for experimentation!
The RISK BUDGET diagrams and percentages are simple to understand - they contrast the %invested against the %contribution to overall portfolio risk. In that way, these are the core insights into diversification - triggering YOUR TOLERANCE for risk AND your subjective view on portfolio performance. A RISK BUDGET is the key to modern portfolio management - with its focus on explicit risk measures.
Now, you set RISK LIMITS that define lower and upper bounds on specific risks: by portfolio; by security; by sector; and by Income/Growth categories. Any RISK ALERTS that may be triggeed are notified by EMAIL.
For completeness, IRISKONLINE estimates risk measures that span the academic research from the early 1950's through to the current day - with its popular emphasis on 'tail risk' and 'extreme losses'.
IRISKONLINE computes risk measures based on FACTUAL historical information and statistical analysis of MONTHLY returns series for a large population of securities listed on the Australian Stock Exchange (ASX). IRISKONLINE does NOT provide financial advice.
IRISKONLINE is a very complex and sophisticated "calculator" based on factual data. See ASIC RG 36 and RG 244. At this stage, IRISKONLINE Pty Ltd does NOT require an Australian Financial Service License (AFSL) - but will apply for an appropriate AFSL if/when the business focus changes.
The only information collected at Registration by IRISKONLINE is: NAME, EMAIL and POSTCODE.
When using IRISKONLINE, the only information required for you to use IRISKONLINE is ASX codes and the number of units you specify for each each ASX code. This is sufficient information for IRISKONLINE to compute the portfolio risk characteristics.
Otherwise, IRISKONLINE has no awareness of your portfolio - real, model or experimental.
Portfolio risks and decompositions are estimated 'on the fly' using sophisticated econometric and statistical analysis. Tables and charts are used to show where overall portfolio risk is concentrated: by security; by industry; and by income/growth.
At one level, IRISKONLINE is simply a calculator similar to many other online calculators that have flourished in recent years with the support of the Financial Services regulator, ASIC at: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps.
When you use iRiskOnline, you create whatever portfolio of listed Australian Securities you decide - actual or hypothetical - nobody needs to know! That portfolio is analysed anonymously by IRISKONLINE and estimated results appear on your Dashboard for your private analysis - free tables, charts and onscreen information. There are also paid reports - strategy and portfolio reports.
No personal information, financial positions, investment objectives or any other details are collected from you by us. Only your email and postcode are required when you register.
In the spirit of all calculators, RiskOnline provides risk modelling capability for any portfolio of Australian listed shares. No advice, specific or general, is offered - nor are we aligned with any financial institution offering such advice.
IRISKONLINE P/L does NOT provide ADVICE and therefore does NOT hold an Australian Financial Service License (AFSL).
If you require financial advice, you are advised to contact an INDEPENDENT professional financial adviser of your own choosing.
If you have any questions or clarifications, please contact IRISKONLINE at: firstname.lastname@example.org.
Conceptually, a SLOT is a HOLDER for a single PORTFOLIO.
In IRISKONLINE, the first SLOT is FREE to all registered users.
If you have a requirement for MORE THAN ONE PORTFOLIO (e.g. DIY superannuation; Company funds invested; special purpose portfolios; experimental portfolios etc) you can purchase an annual subscription for 1 or more portfolio slots from your PERSONAL PAGE in IRISKONLINE.
Additional SLOTS and other subscription items can be purchased at any time with payments made and managed from IRISKONLINE > YOUR PAGE > PURCHASES.
IRISKONLINE will remind you of any SLOTS or other SUBSCRIPTIONS you have due for RENEWAL one month before the RENEWAL date.
On the PORTFOLIO SUMMARY PAGE, there is an UPLOAD/DOWNLOAD facility that uses a structured .CSV format.
A. IMPORT INTO IRISKONLINE USING .CSV FILE: You have a simple .CSV file containing the following information.
Only CODE and HOLDING are required to UPLOAD into IRISKONLINE when using IMPORT FROM .CSV.
Note the "missing data" will have headers but mainly null strings
B. EXPORT FROM IRISKONLINE INTO .CSV FILE:
Note there are NO "missing data" on export from IRISKONLINE
But sometimes it is just as quick to re-enter your holdings directly into IRISKONLINE.
Just a few clicks ....
The most convenient way to include non-traded securities and unlisted securities is to select a similar LISTED security and tag it as a PROXY when it is added to the portfolio. Using this method, the risks of the proxy are deemed to be the risks of the investment you are proxying. You will see 'PROXY' on the portfolio tab for that security.
A non-listed security that is not registered on the ASX.
Significant private assets that have an impact on your wealth at risk. For example, your investment in real estate; your business; your holding of art; shares in private company etc.
Locate a listed security (or securities) that you judge to be of equivalent risk to your unlisted investment. Set the estimated $ value of the non-listed asset to the "notional value" to be invested in the traded proxy investment.
Estimate # shares held and enter code and shares held in IRISKONLINE. Tick check box labelled "PROXY" = Yes.
What does this involve?
Perhaps you have an unlisted security e.g. managed fund; private company investment; substantial unlisted business etc Then clearly there are no data to compute risk within the framework of IRISKONLINE.
A listed fund and/or security that may be newly listed and has insufficent data for risk estimation in IRISKONLINE.
Typically, the selected proxy security for an unlisted Managed Fund is likely to be an Exchange Traded Fund (ETF) rather than an individual company. The appropriate number of shares would then need to be computed as: your total $ investment in the unlisted security divided by the price of the ETF. That is the number of ETF shares to record in your portfolio for your proxy position.
In an early version of IRISKONLINE (many many years ago), when Managed Fund data was less expensive, they were included in the IRISKONLINE database.
Fortunately, we now have the EXCHANGE TRADED FUND to proxy and/or invest. Over the coming years it is likely that listed ETF's will gradually take the place of Unlisted Managed Funds - and say goodbye to: inefficient pricing; slow tax reporting; arbitrary buy-sell margins; hidden commissions to Financial Planners; and antiquated registry systems.
'Shape' is a casual way of refering to a property of a 'probability density' chart.
The best known distribution shape is the bell-shaped 'normal' probability distribution. This refers to the characteristics of portfolio returns measured on dimensions such as 'variability' (e.g. standard deviation); 'symmetry' (e.g. skewness); and 'peakedness/tailedness' (e.g. kurtosis).
These calculations plus other complex metrics approximately define the 'shape' of your portfolio's returns over time.
Here, the red curve suggests that it is more risky when risk is defined as standard deviation. If the blue line represented portfolio returns, it sould be considered less risky.
The next chart is an empirical display of the histogram of monthly returns for the Australian 50 Leaders Accumulation Index from 1991 through 2015 showing the location of the tail risks in RED. This time series is clearly negatively skewed.
The historical risk measures of left tail risk based on an assumption of Normality are shown in the image. For this portfolio, the Value at Risk is -5.94% in any month AND if this is breached the Expected Shortfall could be -7.88%. So, if an investor cannot sustain those losses in a month, this portfolio would be deemed too risky.
This is the same concept as applied in IRISKONLINE - except that SKEW and KURTOSIS are included in the risk measure.
All of these estimators are computed by the IRISK ENGINE and are essential to modelling potential portfolio losses.
We have adopted the convention that when describing portfolio losses - we will say x% loss.
So, if a negative sign was included it would be redundant - and a '4% loss' is the same as saying your portfolio value has changed by minus 4%.
Unlike FAQ's which are constructed to answer BIGGER questions, the RISK TUTOR facility in IRISKONLINE, is written in a practical 'how to do it' and 'what does it mean' style.
Risk Tutor information is marked as a black circle with a white ? in the middle.
These are posted throughout the App where we feel additional information or direction is warranted.
For example Risk Tutors are posted in the key areas:
- Overview Risk Management model;
- Constructing Portfolios;
- Interpreting Portfolio Risk;
- Understanding % Contributions to Risk;
- Viewing Risk Budgets;
- Risk Control Charts;
- Setting Risk Limits; and
- Sending Risk Alerts.
These are the important elements of your personal portfolio risk management system that require a tutor in your early days.
Most licensed Financial Advisor are trained in portfolio management to some level of expertise - and possibly understand modern portfolio risk analytics beyond the ideas given in the Markowitz 1950 model.
He/She should have an Australian Financial Services License ('AFSL') with the authority to suggest changes to portfolios and securities you hold in your portfolios.
Beyond DIVERSIFICATION, your Advisor should understand the finer points of portfolio construction - and the requirement to inspect the risk budget ensuring that the risks taken are acceptablke to you. This is the point when the need for portfolio risk measurement is most important.
In these days of extensive EXCHANGE TRADED FUNDS (ETF's) traded on the Australian Stock Exchange you may save costs relative to using an Advisor who is still locked into UNLISTED managed products (and possibly Commissions).
The times are a-changing!
IRISKONLINE provides a natural 'classroom' for you and your Advisor to communicate and discuss investment risk in general AND your portfolio in particular using the advanced analysis and logical structure in IRIKONLINE.
Many Accountants combine their University studies in ACCOUNTING with courses on FINANCE. Yet, they may NOT have an Australian Financial Services License ('AFSL'). So, although they could probably assist you with the GENERAL risk implications of building a portfolio of listed securities - it may be against the law for them to provide you with personal financial advice i.e. suggestions of specific investments.
However, in terms of general advice, it is likely they will understand the key elements of portfolio theory; diversification; and portfolio management.
Your Accountant may be aligned with an INDEPENDENT financial advisor who can assist you with developing a financial plan. If so, request information on the EXACT nature of their association.
Look carefully and ask questions for which you already know the answers i.e. run a blind quiz with an eligible advisor ..... if they fail then move on.