Description

Recommended for: Capital growth, speculation and young investors.

The Aggressive Risk Portfolio is appropriate for an investor with a high risk tolerance and a time horizon longer than 10 years. Aggressive investors should be willing to accept periods of extreme ups and downs in exchange for the possibility of receiving higher relative returns over the long term. A longer time horizon is needed to allow time for investments to recover in the event of a sharp downturn. This portfolio is heavily weighted with stocks which are historically more volatile than bonds and may include leveraged ETFs such as UGLD, SPXL and TMF.

Methodology & Assets
This portfolio is constructed by our proprietary optimization algorithm based on Modern Portfolio Theory pioneered by Nobel Laureate Harry Markowitz. Using historical returns, the algorithm finds the asset allocation that produced the highest return with volatility less than 17%.

While this portfolio provides an optimized asset allocation based on historical returns, your investment objectives, risk profile and personal experience are important factors when deciding on the best investment vehicle for yourself. You can also use the Portfolio Builder or Portfolio Optimizer to construct your own personalized portfolio.

Assets and weight constraints used in the optimizer process:
  • Bond ETF Rotation Strategy (BRS) (0% to 60%)
  • BUG Permanent Portfolio Strategy (BUG) (0% to 60%)
  • Global Market Rotation Strategy (GMRS) (0% to 60%)
  • Global Sector Rotation Strategy (GSRS) (0% to 60%)
  • Short Term Bond Strategy (STBS) (0% to 60%)
  • Universal Investment Strategy (UIS) (0% to 60%)
  • Universal Investment Strategy 2x Leverage (UISx2) (0% to 60%)
  • US Market Strategy 2x Leverage (USMx2) (0% to 60%)
  • US Sector Rotation Strategy (USSECT) (0% to 60%)
  • World Top 4 Strategy (WTOP4) (0% to 60%)

Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (122.1%) in the period of the last 5 years, the total return, or increase in value of 103.9% of Aggressive Risk Portfolio is lower, thus worse.
  • Looking at total return, or increase in value in of 54.2% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (64.6%).

CAGR:

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:
  • Compared with the benchmark SPY (17.3%) in the period of the last 5 years, the annual performance (CAGR) of 15.3% of Aggressive Risk Portfolio is lower, thus worse.
  • Looking at compounded annual growth rate (CAGR) in of 15.5% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (18.1%).

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Using this definition on our asset we see for example:
  • Looking at the 30 days standard deviation of 9.7% in the last 5 years of Aggressive Risk Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (18.7%)
  • Compared with SPY (22.5%) in the period of the last 3 years, the volatility of 11.4% is lower, thus better.

DownVol:

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (13.6%) in the period of the last 5 years, the downside volatility of 6.9% of Aggressive Risk Portfolio is smaller, thus better.
  • During the last 3 years, the downside deviation is 8.2%, which is smaller, thus better than the value of 16.4% from the benchmark.

Sharpe:

'The Sharpe ratio was developed by Nobel laureate William F. Sharpe, and is used to help investors understand the return of an investment compared to its risk. The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Subtracting the risk-free rate from the mean return allows an investor to better isolate the profits associated with risk-taking activities. One intuition of this calculation is that a portfolio engaging in 'zero risk' investments, such as the purchase of U.S. Treasury bills (for which the expected return is the risk-free rate), has a Sharpe ratio of exactly zero. Generally, the greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.'

Applying this definition to our asset in some examples:
  • The risk / return profile (Sharpe) over 5 years of Aggressive Risk Portfolio is 1.32, which is higher, thus better compared to the benchmark SPY (0.79) in the same period.
  • During the last 3 years, the risk / return profile (Sharpe) is 1.15, which is higher, thus better than the value of 0.69 from the benchmark.

Sortino:

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Applying this definition to our asset in some examples:
  • Looking at the downside risk / excess return profile of 1.86 in the last 5 years of Aggressive Risk Portfolio, we see it is relatively higher, thus better in comparison to the benchmark SPY (1.09)
  • Compared with SPY (0.95) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.6 is larger, thus better.

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Applying this definition to our asset in some examples:
  • Looking at the Ulcer Ratio of 2.2 in the last 5 years of Aggressive Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (5.58 )
  • Compared with SPY (6.83 ) in the period of the last 3 years, the Ulcer Index of 2.7 is smaller, thus better.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Which means for our asset as example:
  • The maximum reduction from previous high over 5 years of Aggressive Risk Portfolio is -17.5 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
  • Looking at maximum drop from peak to valley in of -17.5 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-33.7 days).

MaxDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Which means for our asset as example:
  • Compared with the benchmark SPY (139 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 95 days of Aggressive Risk Portfolio is smaller, thus better.
  • During the last 3 years, the maximum days below previous high is 95 days, which is lower, thus better than the value of 139 days from the benchmark.

AveDuration:

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Using this definition on our asset we see for example:
  • The average days below previous high over 5 years of Aggressive Risk Portfolio is 21 days, which is lower, thus better compared to the benchmark SPY (33 days) in the same period.
  • Compared with SPY (35 days) in the period of the last 3 years, the average days below previous high of 22 days is smaller, thus better.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations
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Allocations

Returns (%)

  • Note that yearly returns do not equal the sum of monthly returns due to compounding.
  • Performance results of Aggressive Risk Portfolio are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.