We wish to present a simple tool for retail investors to understand the risks associated investing. We want to explain using a simple chart and metric on how to interpret standard deviation associated with an investment and how it changes with diversification in assets. For example, an annualized standard deviation of 16% approximately means that every year the value of your $10000 portfolio could go up OR DOWN by $1600 on average, real losses could be much worse. Thus, the S&P500 that can routinely have a standard deviation of 16% can be considered a risky investment with normal loss range of more than $1600 in a given year. If we translate this to your entire portfolio this downside could be significant. Diversification through an addition of a single different asset class could materially reduce this risk. We will also quantitatively rate assets in the same class (keeping the number of classes to a minimum using techniques such as regression) using a simple metric and recommend the most consistently performing assets. We believe there are investments out there that are superior to other due a variety of reasons; superior here means consistency in performance not outperformance over others. We wish to focus our efforts on simplifying the complex world of retail investing and bring transparency and confidence to the investor by arming them with simple questions they can ask potential investment solicitors, similar to questions asked by professional investors.

Share this project: