Defining risk bands

For each level of risk, from Low to High, we work out how much risk would be acceptable to take.

Our approach is unique in its rigour: rather than arbitrarily defining risk bands in terms of existing portfolios, we have defined our risk bands from first principles.

We do this by making some sensible assumptions about investments and how people feel about them – for example, what kind of returns are realistic for each level of risk? And how painful do investors in each risk level consider losses to be?

From these assumptions, we can work out how much risk is suitable for investors in each level – between the extremes of too little return, or too much risk.

Risk bands for five categories

Risk band	Lower limit (%)	Mid-point (%)	Upper limit (%)
Low		3.3	5.0
Medium-Low	5.0	6.7	8.3
Medium	8.3	10.0	11.7
Medium-High	11.7	13.3	15.0
High	15.0	16.7

Risk bands for seven categories

Risk band	Lower limit (%)	Mid-point (%)	Upper limit (%)
Very Low		2.50	3.75
Low	3.75	5.00	6.25
Medium-Low	6.25	7.50	8.75
Medium	8.75	10.00	11.25
Medium-High	11.25	12.50	13.75
High	13.75	15.00	16.25
Very High	16.25	17.50