This portfolio has been optimized for achieving the highest possible return while limiting the maximum Drawdown, that is the highest drop from peak to valley over the analyzed period, to 10%. As a reference, the maximum experienced drawdown of the iShares 20+ Year Treasury Bond ETF (TLT) over the same period has been 27%, while the SPDR S&P 500 (SPY) experienced a drop of 55%.

As such it is a moderate Portfolio suited for investors with a limited risk tolerance and moderate growth expectations.

Please note that the Maximum DrawDown refers to a single event, for analyzing the risk of losses you should also consider other related metrics like the maximum and average duration and the Ulcer Ratio. A more reliable measure for the downside risk of an asset over a period of time is the Downside Deviation or Volatility.

Please note that this portfolio might use leveraged ETF and single stocks. Should these not be allowed in your retirement account please see our 401k and IRS compatible Conservative, Moderate, and Aggressive Risk Portfolios. Contact us for special requirements

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 100%)
- BUG Permanent Portfolio Strategy (BUG) (0% to 100%)
- World Top 4 Strategy (WTOP4) (0% to 100%)
- Global Sector Rotation Strategy (GSRS) (0% to 100%)
- Global Market Rotation Strategy (GMRS) (0% to 100%)
- Maximum Yield Strategy (MYRS) (0% to 100%)
- NASDAQ 100 Strategy (NAS100) (0% to 100%)
- Leveraged Gold-Currency Strategy (GLD-USD) (0% to 100%)
- US Sector Rotation Strategy (USSECT) (0% to 100%)
- Leveraged Universal Investment Strategy (UISx3) (0% to 100%)
- US Market Strategy (USMarket) (0% to 100%)
- Dow 30 Strategy (DOW30) (0% to 100%)
- Universal Investment Strategy (UIS) (0% to 100%)

'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:- Compared with the benchmark SPY (81.7%) in the period of the last 5 years, the total return, or performance of 215.9% of Max Drawdown less than 10% is higher, thus better.
- Looking at total return, or increase in value in of 98.1% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (54.7%).

'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.'

Which means for our asset as example:- Looking at the annual return (CAGR) of 25.9% in the last 5 years of Max Drawdown less than 10%, we see it is relatively greater, thus better in comparison to the benchmark SPY (12.7%)
- Looking at annual return (CAGR) in of 25.5% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (15.6%).

'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:- Compared with the benchmark SPY (13.3%) in the period of the last 5 years, the volatility of 19.7% of Max Drawdown less than 10% is higher, thus worse.
- Compared with SPY (12.8%) in the period of the last 3 years, the historical 30 days volatility of 20.8% is larger, thus worse.

'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:- Compared with the benchmark SPY (14.8%) in the period of the last 5 years, the downside volatility of 9.4% of Max Drawdown less than 10% is lower, thus better.
- Looking at downside volatility in of 9.1% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (14.8%).

'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:- Compared with the benchmark SPY (0.76) in the period of the last 5 years, the risk / return profile (Sharpe) of 1.19 of Max Drawdown less than 10% is higher, thus better.
- During the last 3 years, the ratio of return and volatility (Sharpe) is 1.11, which is larger, thus better than the value of 1.03 from the benchmark.

'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:- Compared with the benchmark SPY (0.69) in the period of the last 5 years, the ratio of annual return and downside deviation of 2.49 of Max Drawdown less than 10% is larger, thus better.
- Compared with SPY (0.89) in the period of the last 3 years, the downside risk / excess return profile of 2.53 is higher, thus better.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (3.97 ) in the period of the last 5 years, the Ulcer Ratio of 2.82 of Max Drawdown less than 10% is lower, thus better.
- Looking at Ulcer Index in of 2.39 in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (4.09 ).

'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 DrawDown of -8.4 days in the last 5 years of Max Drawdown less than 10%, we see it is relatively greater, thus better in comparison to the benchmark SPY (-19.3 days)
- Looking at maximum drop from peak to valley in of -7.6 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-19.3 days).

'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'

Using this definition on our asset we see for example:- Looking at the maximum time in days below previous high water mark of 253 days in the last 5 years of Max Drawdown less than 10%, we see it is relatively larger, thus worse in comparison to the benchmark SPY (187 days)
- Looking at maximum days under water in of 253 days in the period of the last 3 years, we see it is relatively higher, thus worse 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.'

Using this definition on our asset we see for example:- Looking at the average time in days below previous high water mark of 54 days in the last 5 years of Max Drawdown less than 10%, we see it is relatively larger, thus worse in comparison to the benchmark SPY (42 days)
- Looking at average time in days below previous high water mark in of 58 days in the period of the last 3 years, we see it is relatively larger, thus worse 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 Max Drawdown less than 10% 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.