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 15%. 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 aggressive Portfolio suited for investors with a higher risk tolerance and aggressive 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 15%.

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:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (80.1%) in the period of the last 5 years, the total return of 68.2% of Max Drawdown less than 15% is lower, thus worse.
  • During the last 3 years, the total return is 26%, which is smaller, thus worse than the value of 30.8% from the benchmark.

CAGR:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (12.5%) in the period of the last 5 years, the annual performance (CAGR) of 11% of Max Drawdown less than 15% is lower, thus worse.
  • Compared with SPY (9.4%) in the period of the last 3 years, the annual performance (CAGR) of 8% is lower, thus worse.

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 30 days standard deviation of 7.7% in the last 5 years of Max Drawdown less than 15%, we see it is relatively lower, thus better in comparison to the benchmark SPY (21.3%)
  • Looking at historical 30 days volatility in of 6.8% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (17.6%).

DownVol:

'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:
  • The downside volatility over 5 years of Max Drawdown less than 15% is 5.5%, which is lower, thus better compared to the benchmark SPY (15.3%) in the same period.
  • Looking at downside volatility in of 4.7% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (12.3%).

Sharpe:

'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:
  • The ratio of return and volatility (Sharpe) over 5 years of Max Drawdown less than 15% is 1.1, which is greater, thus better compared to the benchmark SPY (0.47) in the same period.
  • Compared with SPY (0.39) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.82 is greater, thus better.

Sortino:

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Using this definition on our asset we see for example:
  • Looking at the downside risk / excess return profile of 1.54 in the last 5 years of Max Drawdown less than 15%, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.66)
  • Compared with SPY (0.56) in the period of the last 3 years, the excess return divided by the downside deviation of 1.17 is greater, thus better.

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:
  • The Downside risk index over 5 years of Max Drawdown less than 15% is 2.46 , which is lower, thus better compared to the benchmark SPY (9.43 ) in the same period.
  • During the last 3 years, the Ulcer Ratio is 2.54 , 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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (-33.7 days) in the period of the last 5 years, the maximum reduction from previous high of -13.5 days of Max Drawdown less than 15% is higher, thus better.
  • During the last 3 years, the maximum drop from peak to valley is -8.1 days, which is higher, thus better than the value of -24.5 days from the benchmark.

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). 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'

Which means for our asset as example:
  • Compared with the benchmark SPY (478 days) in the period of the last 5 years, the maximum days under water of 196 days of Max Drawdown less than 15% is smaller, thus better.
  • Compared with SPY (478 days) in the period of the last 3 years, the maximum time in days below previous high water mark of 196 days is lower, 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.'

Which means for our asset as example:
  • The average days under water over 5 years of Max Drawdown less than 15% is 35 days, which is lower, thus better compared to the benchmark SPY (118 days) in the same period.
  • Compared with SPY (173 days) in the period of the last 3 years, the average time in days below previous high water mark of 42 days is lower, thus better.

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 15% 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.