Description of Aggressive Risk Portfolio

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.

To be compatible with most retirement plans, this Portfolio does not include our Maximum Yield Strategy and leveraged Universal Investment Strategy. If you are using a more flexible account you can choose from our unconstrained portfolios in the Portfolio Library.

We also offer a version for 401k plans which do not allow individual stocks. See details here.

Methodology & Assets
This portfolio is constructed by our proprietary optimization alogrithm 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 16%.

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%)
  • World Top 4 Strategy (WTOP4) (0% to 60%)
  • Global Sector Rotation Strategy (GSRS) (0% to 60%)
  • Global Market Rotation Strategy (GMRS) (0% to 60%)
  • NASDAQ 100 Strategy (NAS100) (0% to 60%)
  • US Sector Rotation Strategy (USSECT) (0% to 60%)
  • Leveraged Universal Investment Strategy (UISx3) (0% to 15%)
  • Universal Investment Strategy (UIS) (0% to 60%)
  • US Market Strategy (USMarket) (0% to 60%)
  • Dow 30 Strategy (DOW30) (0% to 60%)
  • Short Term Bond Strategy (STBS) (0% to 60%)

Statistics of Aggressive Risk Portfolio (YTD)

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

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:
  • Looking at the total return of 196.6% in the last 5 years of Aggressive Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (66.7%)
  • Looking at total return, or performance in of 87.6% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (46%).

CAGR:

'The compound annual growth rate isn't a true return rate, but rather a representational figure. It is essentially a number that describes the rate at which an investment would have grown if it had grown the same rate every year and the profits were reinvested at the end of each year. In reality, this sort of performance is unlikely. However, CAGR can be used to smooth returns so that they may be more easily understood when compared to alternative investments.'

Using this definition on our asset we see for example:
  • Looking at the compounded annual growth rate (CAGR) of 24.3% in the last 5 years of Aggressive Risk Portfolio, we see it is relatively higher, thus better in comparison to the benchmark SPY (10.8%)
  • Looking at annual performance (CAGR) in of 23.4% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (13.5%).

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:
  • The volatility over 5 years of Aggressive Risk Portfolio is 12.8%, which is lower, thus better compared to the benchmark SPY (13.4%) in the same period.
  • During the last 3 years, the volatility is 12.6%, which is greater, thus worse than the value of 12.3% from the benchmark.

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Using this definition on our asset we see for example:
  • Looking at the downside deviation of 14.5% in the last 5 years of Aggressive Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (14.6%)
  • During the last 3 years, the downside volatility is 14.3%, which is higher, thus worse than the value of 13.9% from the benchmark.

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Using this definition on our asset we see for example:
  • Looking at the ratio of return and volatility (Sharpe) of 1.7 in the last 5 years of Aggressive Risk Portfolio, we see it is relatively greater, thus better in comparison to the benchmark SPY (0.62)
  • Compared with SPY (0.89) in the period of the last 3 years, the Sharpe Ratio of 1.66 is higher, thus better.

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.'

Using this definition on our asset we see for example:
  • The excess return divided by the downside deviation over 5 years of Aggressive Risk Portfolio is 1.5, which is larger, thus better compared to the benchmark SPY (0.57) in the same period.
  • Compared with SPY (0.79) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.46 is larger, thus better.

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Which means for our asset as example:
  • The Ulcer Index over 5 years of Aggressive Risk Portfolio is 2.98 , which is smaller, thus better compared to the benchmark SPY (3.99 ) in the same period.
  • During the last 3 years, the Downside risk index is 3.08 , which is lower, thus better than the value of 4.04 from the benchmark.

MaxDD:

'Maximum drawdown measures the loss in any losing period during a fund’s investment record. It is defined as the percent retrenchment from a fund’s peak value to the fund’s valley value. The drawdown is in effect from the time the fund’s retrenchment begins until a new fund high is reached. The maximum drawdown encompasses both the period from the fund’s peak to the fund’s valley (length), and the time from the fund’s valley to a new fund high (recovery). It measures the largest percentage drawdown that has occurred in any fund’s data record.'

Which means for our asset as example:
  • Looking at the maximum DrawDown of -11.2 days in the last 5 years of Aggressive Risk Portfolio, we see it is relatively greater, thus better in comparison to the benchmark SPY (-19.3 days)
  • During the last 3 years, the maximum drop from peak to valley is -11.2 days, which is larger, thus better than the value of -19.3 days from the benchmark.

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) in days.'

Applying this definition to our asset in some examples:
  • Looking at the maximum time in days below previous high water mark of 158 days in the last 5 years of Aggressive Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (187 days)
  • During the last 3 years, the maximum time in days below previous high water mark is 158 days, which is larger, thus worse than the value of 139 days from the benchmark.

AveDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. 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.'

Applying this definition to our asset in some examples:
  • Looking at the average time in days below previous high water mark of 27 days in the last 5 years of Aggressive Risk Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (41 days)
  • Compared with SPY (36 days) in the period of the last 3 years, the average days under water of 31 days is smaller, thus better.

Performance of Aggressive Risk Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Aggressive Risk Portfolio
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Allocations

Returns of Aggressive Risk Portfolio (%)

  • "Year" returns in the table above are not equal to 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.