**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.

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%)

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Which means for our asset as example:- The total return, or increase in value over 5 years of Conservative Risk Portfolio is 70.7%, which is lower, thus worse compared to the benchmark SPY (88.1%) in the same period.
- During the last 3 years, the total return, or performance is 17.3%, which is lower, thus worse than the value of 26.1% from the benchmark.

'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.'

Using this definition on our asset we see for example:- Looking at the compounded annual growth rate (CAGR) of 11.3% in the last 5 years of Conservative Risk Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (13.5%)
- During the last 3 years, the annual performance (CAGR) is 5.5%, which is lower, thus worse than the value of 8.1% from the benchmark.

'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 volatility of 7.2% in the last 5 years of Conservative Risk Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (20.9%)
- During the last 3 years, the historical 30 days volatility is 4.5%, which is lower, thus better than the value of 17.3% from the benchmark.

'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 (15%) in the period of the last 5 years, the downside volatility of 5.2% of Conservative Risk Portfolio is smaller, thus better.
- Compared with SPY (12.1%) in the period of the last 3 years, the downside volatility of 3% is lower, thus better.

'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.'

Using this definition on our asset we see for example:- Looking at the risk / return profile (Sharpe) of 1.22 in the last 5 years of Conservative Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.52)
- Looking at Sharpe Ratio in of 0.66 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.32).

'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.'

Using this definition on our asset we see for example:- The excess return divided by the downside deviation over 5 years of Conservative Risk Portfolio is 1.7, which is higher, thus better compared to the benchmark SPY (0.73) in the same period.
- Looking at ratio of annual return and downside deviation in of 0.99 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.46).

'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:- Looking at the Ulcer Index of 2.07 in the last 5 years of Conservative Risk Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (9.33 )
- Looking at Ulcer Ratio in of 1.87 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (10 ).

'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.'

Using this definition on our asset we see for example:- The maximum drop from peak to valley over 5 years of Conservative Risk Portfolio is -14.8 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- During the last 3 years, the maximum reduction from previous high is -5.2 days, which is higher, thus better than the value of -24.5 days from the benchmark.

'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:- Compared with the benchmark SPY (488 days) in the period of the last 5 years, the maximum days below previous high of 227 days of Conservative Risk Portfolio is lower, thus better.
- Looking at maximum time in days below previous high water mark in of 227 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (488 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.'

Which means for our asset as example:- The average days below previous high over 5 years of Conservative Risk Portfolio is 43 days, which is lower, thus better compared to the benchmark SPY (123 days) in the same period.
- Looking at average days below previous high in of 55 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (179 days).

Historical returns have been extended using synthetic data.
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Allocations and holdings shown below are delayed by one month.

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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.