How We Decide Investment Kits’ Risk Levels

Risk tolerance differs for everyone, depending on a whole host of factors, from your age to your investment goals. That’s why, at Q.ai, we offer a wealth of Investment Kits for all risk appetites.

Here’s how we label them all.

What is a Kit’s risk level?

The risk level for Q.ai’s Investment Kits generally refers to the degree of variability (ups and downs) in investment returns that the Kit may contain.

We measure risk on a scale that includes three levels:

  1. Low Risk
  2. Moderate Risk
  3. High Risk

While some investors choose lower-risk Kits, others may have more room to take on greater risk. With greater risk comes the potential for greater rewards. But, as we always say, portfolio diversification is key.

Why do Investment Kits have different levels of risk?

You’ll notice that, within Q.ai’s range of Investment Kits—including our Foundation Kits, Limited Edition Kits, Speciality Kits and Community Kits—there’s a range of risk. Each Kit is characterized by its own risk level, dependent upon various risk metrics.

The Kits vary in risk because we wanted to create diversity. This way, if you’re more risk-averse, you can choose safer Investment Kits and, if you’re willing to take on more risk, you totally can. You can also diversify your portfolio with a blend of risky and less risky Kits.

How do we decide each Kit’s risk level?

We have a quantitative process for measuring the risk level of each Kit. We compare the risk metrics of each Kit to various benchmarks, including a multi-asset ETF, a blend of two broad-market based ETFs and a highly-risky levered equity ETF.

For example, we take into account the historical standard deviation of returns. We also consider downside scenarios—and just how bad they might be, based on historical data.

Depending on how the Kits score, relative to the aforementioned benchmarks, we assign them a rating of low, moderate or high risk.

Under certain circumstances, we make qualitative assessments, as well. In these cases, we typically err on the side of caution and choose to label a Kit as riskier than the metrics might imply (though this is rare). For example, based on numbers alone, Gas Spike (which is no longer active) was neither that risky nor volatile. However, playing a commodity-based trade over a short time frame carries greater downside than the raw data might suggest. Therefore, Gas Spike was given a moderate risk rating while it was available.

Examples of low-, medium- and high-risk Kits

Smarter Beta is an example of a low-risk Kit. It’s considered less risky than many other Kits from Q.ai because of its relatively low volatility and historical downside potential. These statistical results are related to Smarter Beta’s strategy of shifting allocations between five factor-based ETFs, each of which contains hundreds of individual stocks.

Meanwhile, Value Vault is considered a moderate-risk Kit. It’s considered moderately risky largely because of its use of dozens of individual stocks each week. These can carry some additional company-specific risks relative to a more diversified set of holdings.

Then, you have high-risk Kits like Emerging Tech. Emerging Tech has high risk because of its concentration in high-risk industries and relatively new companies. While there is diversification through the use of tech-focused ETFs, there is still shared exposure to more speculative investment categories.

Bottom Line

Risk is important because the amount of it that you’re willing to take on is correlated to your potential rewards. The more risk you can stomach, the higher your potential rewards. Understanding your risk tolerance—rooted in factors like your age, investment timeline and investing goals—can help you make more strategic investing decisions.

Check out all of Q.ai’s Investment Kits to find what suits your interests. We’ve got you covered with everything from value investing to investing in emerging technologies. There are risk levels for all tolerances.

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