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Empowering Advisors to Measure the True Risk of the Bond Market

How many times have we heard the disclaimer that “past performance isn’t necessarily a predictor of future success?” In investment advisor circles, that rule is carved in granite.

Even worse, there are times when a consensus forms that the future is quite likely to be distinctly different from the past. Today, that’s the bond market. With record-low interest rates being held down by artificial Federal Reserve action, many advisors strongly believe the bond market is in for some big pain.

Today, we’re excited to announce that we’ve launched Interest Rate Stress Testing. It’s the first-ever way for advisors to quickly and easily model their own assumptions about interest rates into the risk analysis for a portfolio.

Here’s an example.

Let’s say an advisor parked 70% of a client’s money in “safe” government treasuries…say 35% in TLT and 35% in TLH. The other 30% is in the stock market. Using the last five years of history, that suggests the portfolio has downside risk of -6% over the next six months.


Now let’s turn on the Interest Rate Forecast. What if rates rise 0.25%? That drives the portfolio risk up by 200 basis points to -8%. And if rates rise 0.5%? Risk skyrockets another 400 basis points to -12%.


That’s right. Interest rates climbing just one half of 1% would double the downside risk of this portfolio from -6% to -12%.

For a less extreme example, just apply the Interest Rate Forecast to building a portfolio using the Optimal Allocation tool. If your client’s goal is Capital Preservation, a flat interest rate environment would put 35% in bonds, 10% in stocks and 55% in cash.


But increase the interest rate forecast to just +5 bps, and the bond allocation drops to 17%, stocks drop to 9% and cash jumps up to 74%.


Riskalyze Pro delivers unprecedented visibility for advisors to measure, understand and align the risk in their portfolios with the risk tolerance of their clients. Interest Rate Stress Testing is just one more great addition to this unique suite of tools that make risk an advisor’s best friend.

Interest Rate Stress Testing is live today for all Riskalyze Pro customers. If you’d like to join a guided tour of Riskalyze Pro, just register here and we’ll be in touch.

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