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, 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.'

Which means for our asset as example:
  • Looking at the total return of 64% in the last 5 years of Conservative Risk Portfolio, we see it is relatively greater, thus better in comparison to the benchmark SPY (62.6%)
  • Compared with SPY (32.1%) in the period of the last 3 years, the total return, or performance of 38.3% is larger, thus better.

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.'

Applying this definition to our asset in some examples:
  • The annual return (CAGR) over 5 years of Conservative Risk Portfolio is 10.4%, which is higher, thus better compared to the benchmark SPY (10.2%) in the same period.
  • Compared with SPY (9.7%) in the period of the last 3 years, the annual return (CAGR) of 11.4% is higher, thus better.

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 30 days standard deviation over 5 years of Conservative Risk Portfolio is 7.1%, which is lower, thus better compared to the benchmark SPY (21.5%) in the same period.
  • Looking at 30 days standard deviation in of 8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (24.8%).

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 volatility of 5.2% in the last 5 years of Conservative Risk Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (15.6%)
  • Compared with SPY (17.9%) in the period of the last 3 years, the downside deviation of 5.8% is smaller, thus better.

Sharpe:

'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.'

Which means for our asset as example:
  • Looking at the Sharpe Ratio of 1.11 in the last 5 years of Conservative Risk Portfolio, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.36)
  • Compared with SPY (0.29) in the period of the last 3 years, the ratio of return and volatility (Sharpe) of 1.12 is higher, thus better.

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:
  • Compared with the benchmark SPY (0.5) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.53 of Conservative Risk Portfolio is greater, thus better.
  • Compared with SPY (0.4) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.52 is higher, thus better.

Ulcer:

'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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (8.52 ) in the period of the last 5 years, the Downside risk index of 2.02 of Conservative Risk Portfolio is lower, thus better.
  • Compared with SPY (10 ) in the period of the last 3 years, the Downside risk index of 2.28 is lower, thus better.

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:
  • The maximum reduction from previous high over 5 years of Conservative Risk Portfolio is -14.8 days, which is higher, thus better compared to the benchmark SPY (-33.7 days) in the same period.
  • Compared with SPY (-33.7 days) in the period of the last 3 years, the maximum reduction from previous high of -14.8 days is higher, thus better.

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (235 days) in the period of the last 5 years, the maximum days under water of 191 days of Conservative Risk Portfolio is smaller, thus better.
  • Compared with SPY (235 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 191 days is lower, thus better.

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.'

Applying this definition to our asset in some examples:
  • The average days under water over 5 years of Conservative Risk Portfolio is 38 days, which is smaller, thus better compared to the benchmark SPY (55 days) in the same period.
  • Looking at average days below previous high in of 45 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (59 days).

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, 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.