Would you rather be guaranteed that you’ll lose $489 on a $1,000 investment? Or, would you prefer a 50-50 chance of either losing all of it, or gaining $1,500?

Those are the kinds of questions posed to users of Riskalyze, a new financial site aimed at helping you select an investment portfolio that is in tune with your tolerance for risk. The site entered its live beta mode last week.

For all the advances the Internet has brought to the world of finance, said Aaron Klein, the site’s chief executive, people still tend to make investment choices the same old way. “We gather information, run it through a subjective filter in our head or gut and say, ‘Is this good for me?’”

Riskalyze, he says, uses technology to help pinpoint an investor’s comfort with risk and to calculate an “optimal mix” of investments — a portfolio that will allow you to sleep at night.

The site doesn’t actually allow you to invest money (although it aims to partner with investment sites in the future or perhaps make fees from referring you to brokerage firms if you need one, down the road). Rather, it suggests a list of investments — or invites you to suggest one — and takes you through three steps to decide how much of your money to put into each category. It requires you to register (more about that later), but it doesn’t charge a fee.

First, the site asks how much money you have to invest and then suggests a list of investments — say, the Dow 30 stocks. Then, it takes your Risk Fingerprint. The tool, Mr. Klein said, differentiates Riskalyze from other risk-analysis tools on the Web, which tend to use simple slider tools.

The Risk Fingerprint tool poses a dozen questions that make you choose repeatedly between Option A — losing or earning a fixed amount of money — and Option B, which involves an equal chance of losing money (the amounts vary) or earning more money (ditto) on your investment.

Your answer to each question determines the details of the subsequent question, so there is a myriad of combinations that can arise. “We’re asking the user 12 times to make a decision between certainty and risk,” Mr. Klein said.

Based on your responses, the tool puts you in various categories — like, Mountain Climber, which means you have “lofty goals” but are willing to take “reasonable risks” to reach them — and recommends an investment allocation.

I tried the tool this week. (It sort of reminded me of a game my husband likes to play with our children. He starts off by saying, “Would you rather,” and then adds two equally preposterous options like “run down Main Street naked or eat live worms?” When they say, “neither!” he adds, “But what if I gave you a thousand dollars?”)

The options on Riskalyze aren’t quite as entertaining, but they do force you to make a calculation about how much stress you’ll accept to earn the chance of a payoff. I hypothesized that I had $1,000 to invest in Dow 30 stocks, including 3M Company, Alcoa, American Express, etc. The tool assumes you’re investing over a six-month period. You can re-assess your risk tolerance periodically, as circumstances change.

Question 1 gave me two options: A, a guaranteed loss of $42; or B, an equal chance of losing $1,000, or gaining $1,500. I chose B. (No risk, no reward, right?)

Eleven questions later, the tool categorized me as an Astronaut (“You’ve got the risk tolerance to shoot for the stars.”).

It then proposed putting 100 percent of my money into stocks ($100 allocated to each of 10 different companies) and zero in bonds. Suddenly, solid ground seemed more attractive to me than outer space. When I looked at it that way — everything in stocks — I wasn’t sure I really was such a risk-taker.

The tool also applies your market outlook to your portfolio. You can apply the tool’s default setting — a historical six-month average, in which stocks rise 5.4 percent and bonds rise 2.5 percent, based on the SP 500 Index for stocks and the Barclays Capital U.S. Aggregate Bond Index. That might work best for long-term investors. Or you can choose a much more pessimistic outlook, in which stocks fall 9.64 percent and bonds fall 3.02 percent, or enter your own predictions. The tool then tells you the probability of hitting a specific maximum gain or maximum loss, so you decide if you want to take that risk. (The stocks the tool pulls for your suggested portfolio change, depending in part on your economic outlook).

One caveat to using Riskalyze comes before you even get to the cool stuff, during the registration process. The site requires you to have either a Facebook or a Twitter account and to register using those sites. That gave me pause, given the ongoing debate over Facebook’s privacy settings.

Mr. Klein said that after much debate, Riskalyze decided it was easier to have users log on through an existing social media site, saving them from having to remember yet another password. It also gives users the option of quickly soliciting opinions about your investment allocations from others online. To do that, you have to agree to let Riskalyze “post to Facebook as me.” But nothing gets posted without your say so, Mr. Klein said.

“We also discovered during our beta program that most users really like to tap the wisdom of their friends to improve their list of investment choices or adjust their portfolio to a more specific economic prediction,” he said in an e-mail. “By authenticating with Facebook and Twitter, getting that feedback is just one click away for the user.”

To reassure users, he said, “We specifically promise to never use those social sharing permissions until you decide you want to.”

Further, any dollar amounts entered onto Riskalyze, the site’s privacy policy says, are private. They aren’t shared with any third party.

What do you think? Is linking to Facebook or Twitter worth it to gain access to helpful risk analysis?

Article source: http://feeds.nytimes.com/click.phdo?i=08fa842f6d82c166fc6b8fc3e9e5b939