Description

Recommended for: Capital preservation, liquidity and for investors close to or in retirement.

The Conservative Portfolio is appropriate for an investor with a low risk tolerance or a need to make withdrawals over the next 1 to 3 years. Conservative investors are willing to accept lower returns in exchange for lower account drawdowns in periods of market volatility.

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 offer a portfolio version for 401k plans which do not allow individual stocks - this is set with a moderate risk level, but actually results in a volatility which might also be acceptable for those looking for a conservative set. See details here.

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 7%.

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 40%)
  • BUG Permanent Portfolio Strategy (BUG) (0% to 40%)
  • Global Market Rotation Strategy (GMRS) (0% to 40%)
  • Global Sector Rotation Strategy (GSRS) (0% to 40%)
  • Hedge Strategy (HEDGE) (0% to 40%)
  • Short Term Bond Strategy (STBS) (0% to 50%)
  • Universal Investment Strategy (UIS) (0% to 40%)
  • US Market Strategy (USMarket) (0% to 40%)
  • US Sector Rotation Strategy (USSECT) (0% to 40%)
  • World Top 4 Strategy (WTOP4) (0% to 40%)

Statistics (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.'

Applying this definition to our asset in some examples:
  • The total return, or increase in value over 5 years of Conservative Risk Portfolio is 62%, which is lower, thus worse compared to the benchmark SPY (97.5%) in the same period.
  • Compared with SPY (25.6%) in the period of the last 3 years, the total return, or performance of 21.8% is lower, thus worse.

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:
  • Compared with the benchmark SPY (14.6%) in the period of the last 5 years, the annual return (CAGR) of 10.2% of Conservative Risk Portfolio is lower, thus worse.
  • Looking at annual return (CAGR) in of 6.8% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (7.9%).

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Applying this definition to our asset in some examples:
  • The 30 days standard deviation over 5 years of Conservative Risk Portfolio is 5.8%, which is lower, thus better compared to the benchmark SPY (18%) in the same period.
  • During the last 3 years, the 30 days standard deviation is 5.3%, which is lower, thus better than the value of 18.8% 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:
  • The downside volatility over 5 years of Conservative Risk Portfolio is 4%, which is smaller, thus better compared to the benchmark SPY (12.6%) in the same period.
  • Looking at downside volatility in of 3.7% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (13%).

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.'

Which means for our asset as example:
  • The risk / return profile (Sharpe) over 5 years of Conservative Risk Portfolio is 1.32, which is greater, thus better compared to the benchmark SPY (0.67) in the same period.
  • Looking at ratio of return and volatility (Sharpe) in of 0.81 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.29).

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Which means for our asset as example:
  • The excess return divided by the downside deviation over 5 years of Conservative Risk Portfolio is 1.93, which is larger, thus better compared to the benchmark SPY (0.96) in the same period.
  • Looking at ratio of annual return and downside deviation in of 1.17 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.42).

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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (8.41 ) in the period of the last 5 years, the Ulcer Ratio of 1.74 of Conservative Risk Portfolio is lower, thus better.
  • Looking at Downside risk index in of 1.83 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (7.08 ).

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.'

Applying this definition to our asset in some examples:
  • The maximum reduction from previous high over 5 years of Conservative Risk Portfolio is -5.2 days, which is higher, thus better compared to the benchmark SPY (-24.5 days) in the same period.
  • During the last 3 years, the maximum DrawDown is -4.7 days, which is higher, thus better than the value of -19.2 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). 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'

Applying this definition to our asset in some examples:
  • Looking at the maximum time in days below previous high water mark of 227 days in the last 5 years of Conservative Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (488 days)
  • Looking at maximum days below previous high in of 196 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (290 days).

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 43 days in the last 5 years of Conservative Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (118 days)
  • Compared with SPY (74 days) in the period of the last 3 years, the average days below previous high of 47 days is lower, thus better.

Performance (YTD)

Historical returns have been extended using synthetic data.

Allocations ()

Allocations

Returns (%)

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