Description

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

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 maximum drawdown less than 10%.

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%)
  • Global Market Rotation Strategy (GMRS) (0% to 100%)
  • Global Sector Rotation Strategy (GSRS) (0% to 100%)
  • Maximum Yield Strategy (MYRS) (0% to 100%)
  • Short Term Bond Strategy (STBS) (0% to 100%)
  • Universal Investment Strategy (UIS) (0% to 100%)
  • Universal Investment Strategy 2x Leverage (UISx2) (0% to 100%)
  • US Market Strategy (USMarket) (0% to 100%)
  • US Market Strategy 2x Leverage (USMx2) (0% to 100%)
  • US Sector Rotation Strategy (USSECT) (0% to 100%)
  • World Top 4 Strategy (WTOP4) (0% to 100%)

Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'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.'

Using this definition on our asset we see for example:
  • The total return, or performance over 5 years of Max Drawdown less than 10% is 43.2%, which is smaller, thus worse compared to the benchmark SPY (102.7%) in the same period.
  • Compared with SPY (38.1%) in the period of the last 3 years, the total return of 16.2% is lower, thus worse.

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (15.2%) in the period of the last 5 years, the annual performance (CAGR) of 7.5% of Max Drawdown less than 10% is smaller, thus worse.
  • Looking at compounded annual growth rate (CAGR) in of 5.1% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (11.4%).

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:
  • Looking at the volatility of 4.2% in the last 5 years of Max Drawdown less than 10%, we see it is relatively lower, thus better in comparison to the benchmark SPY (20.9%)
  • Looking at historical 30 days volatility in of 3.3% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (17.3%).

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Which means for our asset as example:
  • The downside volatility over 5 years of Max Drawdown less than 10% is 3.1%, which is lower, thus better compared to the benchmark SPY (15%) in the same period.
  • Looking at downside risk in of 2.3% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12%).

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (0.61) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.19 of Max Drawdown less than 10% is greater, thus better.
  • Looking at ratio of return and volatility (Sharpe) in of 0.8 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.51).

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 (0.85) in the period of the last 5 years, the downside risk / excess return profile of 1.61 of Max Drawdown less than 10% is greater, thus better.
  • During the last 3 years, the downside risk / excess return profile is 1.17, which is greater, thus better than the value of 0.74 from the benchmark.

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:
  • Looking at the Ulcer Index of 1.21 in the last 5 years of Max Drawdown less than 10%, we see it is relatively lower, thus better in comparison to the benchmark SPY (9.32 )
  • During the last 3 years, the Ulcer Index is 1.16 , which is lower, thus better than the value of 10 from the benchmark.

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:
  • Looking at the maximum reduction from previous high of -9.5 days in the last 5 years of Max Drawdown less than 10%, we see it is relatively higher, thus better in comparison to the benchmark SPY (-33.7 days)
  • Looking at maximum reduction from previous high in of -3.9 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-24.5 days).

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.'

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 154 days of Max Drawdown less than 10% is smaller, thus better.
  • Compared with SPY (488 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 154 days is smaller, thus better.

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:
  • Compared with the benchmark SPY (124 days) in the period of the last 5 years, the average days below previous high of 28 days of Max Drawdown less than 10% is lower, thus better.
  • Looking at average days below previous high in of 33 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (181 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 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.