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

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%)
- World Top 4 Strategy (WTOP4) (0% to 40%)
- Global Sector Rotation Strategy (GSRS) (0% to 40%)
- Global Market Rotation Strategy (GMRS) (0% to 40%)
- NASDAQ 100 Strategy (NAS100) (0% to 40%)
- US Sector Rotation Strategy (USSECT) (0% to 40%)
- Universal Investment Strategy (UIS) (0% to 40%)
- US Market Strategy (USMarket) (0% to 40%)
- Dow 30 Strategy (DOW30) (0% to 40%)
- Short Term Bond Strategy (STBS) (0% to 50%)

'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:- The total return over 5 years of Conservative Risk Portfolio is 103.1%, which is larger, thus better compared to the benchmark SPY (77.7%) in the same period.
- During the last 3 years, the total return, or performance is 62.8%, which is higher, thus better than the value of 52.3% from the benchmark.

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Using this definition on our asset we see for example:- The annual performance (CAGR) over 5 years of Conservative Risk Portfolio is 15.2%, which is greater, thus better compared to the benchmark SPY (12.2%) in the same period.
- Compared with SPY (15.1%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 17.7% is higher, thus better.

'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 historical 30 days volatility over 5 years of Conservative Risk Portfolio is 5.9%, which is lower, thus better compared to the benchmark SPY (13.3%) in the same period.
- Looking at volatility in of 5.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (13%).

'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:- Looking at the downside volatility of 4% in the last 5 years of Conservative Risk Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (9.6%)
- During the last 3 years, the downside volatility is 3.9%, which is smaller, thus better than the value of 9.4% from the benchmark.

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Applying this definition to our asset in some examples:- Looking at the Sharpe Ratio of 2.15 in the last 5 years of Conservative Risk Portfolio, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.73)
- Compared with SPY (0.97) in the period of the last 3 years, the risk / return profile (Sharpe) of 2.63 is greater, thus better.

'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.'

Applying this definition to our asset in some examples:- Looking at the ratio of annual return and downside deviation of 3.22 in the last 5 years of Conservative Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (1.01)
- During the last 3 years, the downside risk / excess return profile is 3.9, which is higher, thus better than the value of 1.34 from the benchmark.

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Using this definition on our asset we see for example:- The Downside risk index over 5 years of Conservative Risk Portfolio is 1.27 , which is lower, thus better compared to the benchmark SPY (3.97 ) in the same period.
- Looking at Downside risk index in of 1.06 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (4.1 ).

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Using this definition on our asset we see for example:- Looking at the maximum reduction from previous high of -5.8 days in the last 5 years of Conservative Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (-19.3 days)
- Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum DrawDown of -5.8 days is greater, thus better.

'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 135 days in the last 5 years of Conservative Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (187 days)
- Looking at maximum days under water in of 57 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (139 days).

'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:- Compared with the benchmark SPY (42 days) in the period of the last 5 years, the average days under water of 21 days of Conservative Risk Portfolio is lower, thus better.
- Looking at average time in days below previous high water mark in of 13 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (37 days).

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Conservative 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.