Review of Riskalyze investment portfolio optimization services.

Riskalyze Investment Software Review

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An Overall Product Classification, Generic Review, and Evaluation of Their Functions

We're trying to do a fair and balanced review, so if you dispute any of this, just send an e-mail and we'll look at it and if you're right, then we'll edit that and give you a freebie to thank you

About MoneyTree Easy Money software.

Generic Description: Cloud-based portfolio optimizer.

Market: Anyone that has not read this page yet

Review Date: June '14


Platform: Cloud-based.

Read why you should not be working in the clouds when it comes to financial planning software.

Price: ~$50 for it to work two months. We charge $50 per portfolio.

Annual Update Prices: $50

Finra Reviewed: The chances of any of these dangerous services being approved by any Broker Dealer is small. FINRA won't even review anything to do with any portfolio optimizer.

Riskalyze Comparison Conclusions; Comments, Opinions, and Observations

First, if these services scared you into buying a fixed annuity that barely pays 1%, and now you're not happy about the market going up - because you could have had that money, then your "financial adviser" said you were stupid for taking too much investment risk, and then got you out of the market and into a fixed annuity; then this is a good example of what the new DoL Fiduciary Rules are about.

Contact them to see if they can "fix" that problem for you! This is the kind of "scam" these new rules were crafted to regulate, and this would be a textbook example of being duped into buying an "unsuitable and expensive investment product" - when not only is there something better and cheaper available, you held that before you were duped!

Don't think you were duped? Just calculate how much more money you would have now if you would have told your "financial adviser" to go pound salt instead. Be sure to account for the 5% to 10% shaved off the top in annuity commissions too! And never forget that you're stuck for life with these record low interest rates, when they could go up to 6% in a year, and the stock market could go up 7% a year for decades.

This is an easy one, because this is all it is:

They use pretty much the same investment risk tolerance scoring methodology as everyone else has been using since the beginning of time (with the usual small tweaks just to be different), to determine a generic risk tolerance.

The failure there is that it has less than ten questions, which is woefully inadequate to perform its intended function. So that alone is a huge liability lurking in the shadows.

Then they input current investment holdings into a portfolio optimizer simulation, to see where it fits onto an efficient frontier.

Then they make comparisons. If the investor scored Moderate in risk tolerance, and the optimizer said the portfolio was too aggressive, then the investor needs to sell equities and buy more fixed income. If the investor scored Aggressive and the portfolio was too conservative, then they should do the opposite.

Another major failure is they they're "cherry picking" their default time horizon. They set it to start just before The Great Meltdown. So if your current inputted portfolio has any stocks in it all, then the result is going to be, "DANGER, YOUR BOGUS RISK NUMBER IS TOO HIGH!!!"

Have them change the start month to March 2009 and note the difference.

Here's why is bad for BDs: They perform a risk tolerance evaluation and see you're a Moderate. They input your holdings and perform an optimization with a start month a few months before The Great Meltdown. Most of your stock mutual funds lost a third during the meltdown, so they tell you that you were stupid by taking too much risk. So you buy into the Rep's recommendation and now your portfolio is mostly fixed income. Then the DJIA reaches a new high month after month year after year. You missed out and don't make any money. You're pissed. You sue the Rep and BD and win because of good 'ol suitability issues. Why? Because a you're a Moderate and they invested you like a Conservative.

Why did they do that? Scorpion and the Frog. This is their business model. If you hire Riskalyze, they're (usually) going to tell you that you've been taking too much risk. That's how they make their money (they make their money by selling portfolio analysis to Reps, that are able to pay for it via the income generated by selling current "risky" investments and buying new "conservative" ones). If you hire a chiropractor, he's gonna wanna crack. If you hire a surgeon, he's gonna wanna cut. If you hire a shrink, he's gonna wanna talk. If you hire a BD Rep, he's gonna wanna move nice safe high-commission products, like fixed annuities and American Funds.

So everyone can be harmed except Riskalyze, in most all scenarios other than extreme prolonged market crashes.

I hope now you get why there's no mystery here. It's basic human nature 101: Another "Wall Street firm" found a newfangled way to fleece the sheeple. Zero surprise here. In this case, the people doing the most baaaaaaaing are the BD Reps. All they see is the quick easy money made by scaring investors, so thinking it all through just never happened.

So it's up to each BD's compliance department to act like responsible parents in this situation. Just because you can do a thing, does not mean you have to, nor you should.

So just don't do that.

They have other services, but this is the gist of their business model.

Their biggest failure is that they're just barking up the wrong trees. They need to forget all about BD Reps and just confine marketing to fee-only RIAs (just like us). This is because only the dumbest compliance officers are going to let their Reps use this. Any compliance person with more than two brain cells is going to disapprove of their Reps using it. This is because not only is it a bogus pie in the sky fantasy smoke and mirrors service, but when the average Reps goes around talking about it, just about every word coming out of their mouths will be even more out of compliance than their website text.

After reading this page (click here on this link) that thoroughly explains portfolio optimization, you should know to run for the hills instead of taking any of this seriously.

The bottom line is that risk, return, and covariances are the exact opposite of being stable, so the chances of a past portfolio's risk and return characteristics over any time frame being even remotely similar to what will happen in any future time frame is slim to none, and Slim left town. So your robot should be waving it's arms going, "Warning, extreme danger Will Robinson, danger danger!!!"

So don't let their cool modern website fool you - this is a perfect example of something to avoid like the plague (unless you're a student working on a thesis or something purely academic). BTW, our site can't "look cool" because there's no way to do that when there's almost 300 pages of content.

You don't want to input any of your personal financial information into this site just to use it, because of generic cloud insecurity.

After watching some of their videos, it looks like most of what they're doing is spending about $2,000 a year on an optimizer, and then inputting users' data (data you give to them) to determine where the portfolio is on the efficient frontier over X time frame. Then they tell you what the rate of return and standard deviation (and other portfolio statistics that are equally useless because they have zero predictive ability) were. Then they compare that to things like your calculated risk tolerance and market indices.

Basically, they're trying to make a living off of using portfolio optimizers. This is something I tried to do and failed at back in the last century, years before the Internet.

Why did it fail miserably? Because most people are smart enough to know this is all a wishful thinking pie in the sky bogus fantasy on steroids. So advisers didn't hire me to run the numbers, so I gave it up.

The #1 thing to walk away with after watching their main video on their home page is that, "This guy is waaaaay too young to know how things as complex as money actually work in the Real World." He's even younger than I was back when I believed in portfolio optimization.

Then in the first few sentences, he tells you how they're going to analyze and then quantify your investment risk(s) exactly, and all that.

So you can't even get past the first minute of their first video without a major E&O blunder (by saying they can perform a service that cannot possible be performed in the Real World).

So that's just a big red flag waving at Finra, the SEC, and state regulators saying, "Hey look at me, I'm selling fantasy as reality, whatcha gonna do about it, huh?"

Anyone with a "real" education and/or experience in investment management (e.g. the CFA program, and/or being around the block at all of the rodeos more than a few times) knows that this is not just possible, and never will be.

So it's just a matter of time before this site goes the exact same way as all of the other dozens of sites trying to profit from optimization - including William Sharpe's - the Nobel Prize winning genius that sort of brought optimizers to market! If he tried and failed, several times (and is still at it today), with all of the different ways they (the tards at Stanford) tried to profit from portfolio optimization, then the chances of this site being the one and only one that wins, is also slim to none. It would be something to write home about if this site made it big, and lasted more then five years, as it would be the first entity to survive "the perils of portfolio optimizers."

It's the rocket science of investment management, and has an initial "wow look cool let's try that" effect, but it's short-lived because it just doesn't work in the Real World.

Why doesn't it work in the Real World - in simple English? You run an optimization and buy the most efficient portfolio it produces. Wait one-year. Compare the numbers the portfolio actually generated with what the optimizer "said would happen with a 95% confidence level."

It's a night a day difference, and you're in for a loooooooong night, because the difference is never better than the wild beast said it would be.

So it failed. It always fails. Never once in the thousands of portfolios I've made using the world's best optimizer from '92 to '02 did the "efficient optimized portfolio" do well, or even beat the markets - FAIL!

Little-to-nothing can be adequately quantified, even if you could because the data doesn't have enough predictive value to be useful in any way. Then EVERYTHING in this business is just a result of mostly random chaos from investors guessing how current news will affect future prices. So there is no way at all to predict, quantify, or get an exact number on anything meaningful period.

Even if you could, the data has no value because it has no predictive value, and if it has no predictive value, then its guess (and yours) is just as good as the next usual usually wrong tards'.

If you can't predict what's going to happen in the future, then your only value to clients as an investment adviser is to be a passive asset allocator (because the only other two ways of managing money - security selection and market timing, both depend on being able to predict the future).

Therefore, this money tool has no value in the Real World. Then because of the perils of using portfolio optimizers, it has worse than no value - it has extreme negative value (which is why I stopped using them in 2002).

Portfolio optimizers guesstimate what happened in the past, and are not capable of quantifying any type of current investment risks, nor are they capable of making any accurate future predictions about returns, covariances, or any way to quantify any type of risks whatsoever.

So if you can't use a money tool to help predict what may happen in the future, then it has negative value in the Real World - it's just that simple.

Just think about it (for a change). What's the point? Even if you're magic black box spits out perfectly correct data about what happened in the past, it still has little-to-predictive value when it comes to what's going to happen now, or at any point in the future. So what is the value of the vast majority of all "portfolio statistics" - like sigma (risk), covariances, beta, Sharpe, Treynor, this that and the other. Nada, el zilcho, bupkiss.

What everyone wants, and what does not and will never exist, is the magic black box that will spit of data that can be manipulated to the point where it's going to tell you, with a high degree of accuracy, what the price of something will trade at in the future (or in this case, what the risk of something will be now, or in the future).

The only magic black box that's ever been created and peddled to perform this function is the portfolio optimizer. And guess, what? It's just doesn't work. Complete total and utter failure.

This is why "nobody" uses them, and the only time you read about them is when someone in academia thinks they've invented the new magic formula (or new black box) that will predict the future (and this is published somewhere in the world almost on a monthly basis - in places like the "CFA Magazine" and other geek reading).

So whatever they're charging you to input data into an optimizer (which only takes a few minutes to half an hour), and then showing you the resulting numbers (which only takes minutes too), we can probably do all of that for you for only $50. Then it will be at a much higher level of skill, expertise, education, experience, and knowledge level too. For every hour everyone has worked with optimizers at Riskalyze, I've probably have ten. There's probably nobody in the history of ever that has more hours behind all forms of optimizers as me (so by default, I am THE expert on what I call "this crap"). The guy on the main videos is so young that, like they say, "I've forgotten more knowledge about the subject than they will ever know."

Once you have the optimizer software, and know how to use it (I have over 25,000 hours using it), then it's about fifteen minute's work to input a portfolio and get the results. So you should know that it only takes half an hour's work to get these numbers. It's several to a dozen hours of very hard work to create a new "optimized portfolio," but it doesn't look like they're going down that road.

Then if they're not using AdvisoryWorld's Power Optimizer, they're using an inferior optimizer too, as this is still the best one (because they they're still best at functionality and are still good at maintaining their database). The other option is to use Morningstar's old Ibbotson program, which was barely useable the last time we used it. Most all other main asset level portfolio optimizer vendors gave it up years ago.

Or you can just buy Power Optimizer yourself from Or you can fumble around with Morningstar's old Ibbotson program (if you're already paying for Morningstar's software that's more than Advisor Workstation, then you probably already have this software ready to go).

Then after paying over $2,000 a year, you can run all of these optimization simulations yourself for free. Then you can play around with it all you want to. Then you'll see firsthand why nobody uses these programs, and the only place it has a home is in academia.

There's a good reason for most everything, and if you do the work needed to find them, you usually can. Mystery very much solved and the answers to most everything about portfolio optimization, and these types of investment management services, are here on the optimizer page.

Here's some text for Riskalyze's attorney that sent me a cease and desist e-mail about this page: Bring on the lawsuit, please! Facts, data, evidence, advisors with more than one brain cell, Finra, the SEC, the CFPB, all government regulators, and everything is on my side.

What do you have on your side? Just a lawyer that hasn't done their homework about this business, and is clueless about optimizers.

You will lose big time, and the bottom line is that your site and your service will be taken down forever (by state regulators), and I'll get that much attention and exposure.

So go ahead sue me - there's nothing on this page, or here, that's not true and it can all be proven in a court of law.

You are the one that should have lawsuit brought against you - and you eventually will have that when people start realizing how this stuff actually works (the #1 reason I didn't pursue this as a service is that it's all fantasy - so if you're selling fantasy as reality these days, it's only a matter of time before reality catches up to you, and you fail).

Lawsuit: Real World Reality v. a young guy or two that thinks optimizer fantasy is reality. Guessing who will prevail is a no-brainer. It will make for great reading for decades to come, and I'm looking forward to the free publicity it will generate!

Note for BD Compliance Officers: Finra will just say no to reviewing everything having anything to do with both optimizers and Monte Carlo simulators. Why? Because everything to do with all of that is bogus pie in the sky smoke and mirrors that not only doesn't work, but will come back to haunt you more than anything else in this biz.

So Finra will just refuse to review it. Which means if you approve it, you will bear all liability.

Here's what I'd if I were you: Print all of their text from their site. Use a yellow highlighter and highlight all text that you know can't be communicated to the public. About half of what they say is just so far beyond acceptable that it's beyond belief. Then postal mail it all to a Finra supervisor. Then when they respond, you'll see the avalanche of liability you'd be facing if you let your Reps use it.

Also send hard copies of everything they send you when they claim another BD's compliance department approved it. If they did, then they're so stupid that they should be terminated. More likely whatever they send you will be redacted (faked).

Bottom lines is that most everything they say is so far out of compliance that just not enough words in the dictionary to describe it.

Not only that, everything their software outputs is the epitome of error and omission that doesn't work in the Real World.

What I'm hearing from people is that they're becoming more aggressive and desperate as time goes on, and have already pushed the marketing envelope beyond its limits. You do not want to be a part of that when it all comes crashing down.

So if you don't want your future to be a never ending parade of whining clients, just say no to everything having anything to do with portfolio optimizers. It's just as simple as that.

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