Why does risk of loss remain at 4% on my Wealthfront Financial Advisor when I increase risk tolerance to "11"?
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Risk of loss is higher at lower risk tolerances then after 4 it asymptotes to 4%.
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Answer:
Good question. It turns out that as risk tolerance increases, the total chance of loss doesn't change much. The distribution of loss scenarios does, however. Compare these two projections, for instance: Both have roughly the same chance of loss across the entire timeline, but see how the red area projects further down in the chart on the right (especially for the first few years)? This means that the higher risk plan's loss scenarios are generally more severe, even though the total chance of loss is still roughly the same. We're considering a few ways to improve the labeling on our projections to make this point more clear. If anyone has suggestions, we're all ears!
Jared Jacobs at Quora Visit the source
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