How risk shapes your investment mix

Read time: 4 to 6 minutes

Your mix of investments is critical to your long-term financial success. Vanguard Digital Advisor® builds and manages your personalized mix using specific details from your investor profile, along with your comfort with investment risk. Find out more about how these factors work together to help you achieve financial success and get to the retirement you deserve.

Your details matter

Vanguard Digital Advisor is a replacement for the Vanguard Managed Account Program (VMAP™). And you may be wondering, why do I need to create a new investor profile? Can't Digital Advisor use the profile from my old automated investment management service?


The short answer is no. Digital Advisor can't access your VMAP profile, so we're using settings your employer chose for everyone who moved to the new service. And while those settings—planned retirement age, time in retirement, tax filing status, and comfort with risk—might work for some, they are likely not a good fit for you and your unique financial needs.


To get a plan that's personalized just for you, review your Digital Advisor profile and make any updates needed to reflect your unique situation.

Complete my profile

How do my profile settings shape my personalized investment mix?

We use 2 key factors to build your personalized investment mix.

Factor #1: Your risk capacity

To help determine the amount of risk you can afford to take and still be on track to meet your goals, we use your planned retirement age, time in retirement, and tax filing status.

Factor #2: Your comfort with investment risk

To help determine the amount of risk you’re comfortable taking to reach your goals, we use a 3-question risk survey.

With Digital Advisor, you can rest easy knowing your investment mix will align with your risk capacity and comfort with risk.1

How the survey helps us determine your comfort with investment risk

Often, investors respond to a question about risk one way, but when the markets stumble they do something different. That’s why our risk assessment tool is so important. It’s designed to determine your true attitude toward risk.

The risk survey poses 3 financial scenarios. One scenario focuses on the long term, and 2 focus on the short term. Each scenario shows pairs of best and worse outcomes for your money. Your answers help us narrow down your comfort with risk to these specific values: very conservative, conservative, moderate, aggressive, or very aggressive.

Read transcript

0:38 min

You may be tempted to overthink the survey questions. But your best bet is to answer them quickly based on your gut feeling about investing risk. When you've finished answering the questions, you can review your choices and update your answers if needed. Then, we'll show you the risk attitude we calculate based on your answers. If it doesn't feel true to you, you can bump it up or down 1 or 2 levels. Or you can retake the survey entirely.
BEHIND THE SURVEY
Vanguard’s Digital Advisor risk assessment is backed by complex modeling and forecasting tools that draw on our decades of investment experience. Our expert knowledge and experience, combined with qualitative and quantitative testing with thousands of Vanguard investors, helped us create a 3-question survey that assesses your tolerance for risk and loss.

Building the investment mix that’s right for you

Digital Advisor takes your personal info and risk attitude and runs these details through 10,000 different market scenarios to figure out how to balance your risk capacity with your risk tolerance in both up and down markets. Based on this complex data analyses, Digital Advisor picks the best long-term investment strategy for you.

The building blocks for your investment strategy

Your unique investment strategy is based on 2 things: your investment mix and your glidepath.

1. Your investment mix. This simply refers to how much cash, stocks, and bonds you hold in your account. Each type of investment has a different level of market risk. Higher market risk provides you with greater potential for gains, but also increases your likelihood for losses. Cash has less market risk than bonds, which carry less market risk than stocks. Digital Advisor will recommend an investment mix that aligns with both your risk capacity and tolerance.

If you’re a risk taker with the capacity to handle losses, your mix will contain more stocks. If you’re a conservative investor with less risk capacity, your mix will have more bonds and cash. The relative amounts depend on your personal risk profile.

2. Your glidepath. Your investment mix isn’t, and shouldn’t be, static. As you near retirement, Digital Advisor will automatically update your mix. It will gradually move you away from investments with a higher risk, like stocks, to investments with a lower risk, like bonds and cash. This can help safeguard your money and prevent it from being as affected by large market swings. How quickly your investments become more conservative is based on your personal risk capacity and tolerance.

This is an example glidepath only.
Locking in the right investment mix and glidepath is key to your long-term investing success. That's because picking the right mix, and adjusting it as needed, is responsible for over 90% of your portfolio's returns.2 In short, your mix matters both now and in the future. That's why it's important to update your profile as soon as possible, so Digital Advisor can start working for you based on your unique info.

How does Digital Advisor manage your mix?

Digital Advisor automatically rebalances your investments as needed. Normal changes in the price of stocks and bonds can alter your overall asset mix. When your investment mix moves from your goal by 5% or more, Digital Advisor will automatically rebalance your account. It can do this, for example, by selling stock if the price has increased and using the money to buy additional bonds.
As this chart illustrates, an investment mix that is evenly split between stocks and bonds can shift over time as stock and bond prices change. In this example, stock prices have increased, throwing the mix out of balance. Digital Advisor will spot the imbalance and automatically rebalance the account back to a 50-50 value split.
Read more about rebalancing here. 
Key reasons to get started today

Why should you update your profile and take the risk survey today? To:
 

  • Give us the info Digital Advisor needs to build your unique investment mix and glidepath.

  • Help get—and keep—your investments on track to reach your goals.

Remember, risk matters. That’s why Digital Advisor takes the guesswork out of figuring out your risk tolerance and capacity. So update your profile today—and let Digital Advisor help set you up for long-term investment success!

Complete my profile
Whenever you invest, there’s a chance you could lose the money.
1Stephen M. Weber et al. The Value of Personalized Advice. Vanguard, 2022.

2Donaldson et al. Vanguard’s Framework for Constructing Globally Diversified Portfolios. Vanguard 2021, and Tactical Versus Strategic Asset Allocation. Vanguard, 2022.

Vanguard Digital Advisor's services are provided solely by Vanguard Advisers, Inc. (VAI), a registered investment advisor. Please review the Vanguard Digital Advisor brochure for important details about this service. Vanguard Digital Advisor's financial planning tools provide projections and goal forecasts, which are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss

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