The Margaritaville portfolio was proposed by Scott Burns, a popular Dallas Morning News financial columnist. It consists of one part total stock index, one part international stock index, and one part inflation-protected Treasury securities.

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (68.1%) in the period of the last 5 years, the total return, or performance of 28.2% of Margaritaville Portfolio is lower, thus worse.
- During the last 3 years, the total return is 23%, which is smaller, thus worse than the value of 47% from the benchmark.

'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:- The annual performance (CAGR) over 5 years of Margaritaville Portfolio is 5.1%, which is lower, thus worse compared to the benchmark SPY (11%) in the same period.
- Looking at compounded annual growth rate (CAGR) in of 7.1% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (13.7%).

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:- Looking at the 30 days standard deviation of 13% in the last 5 years of Margaritaville Portfolio, we see it is relatively smaller, thus better in comparison to the benchmark SPY (21.4%)
- Compared with SPY (18.7%) in the period of the last 3 years, the 30 days standard deviation of 11.9% is lower, thus better.

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (15.4%) in the period of the last 5 years, the downside deviation of 9.5% of Margaritaville Portfolio is lower, thus better.
- Compared with SPY (13.3%) in the period of the last 3 years, the downside risk of 8.4% 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:- Compared with the benchmark SPY (0.4) in the period of the last 5 years, the Sharpe Ratio of 0.2 of Margaritaville Portfolio is smaller, thus worse.
- Looking at Sharpe Ratio in of 0.39 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.6).

'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:- Looking at the ratio of annual return and downside deviation of 0.27 in the last 5 years of Margaritaville Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (0.55)
- During the last 3 years, the downside risk / excess return profile is 0.55, which is smaller, thus worse than the value of 0.84 from the benchmark.

'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.'

Using this definition on our asset we see for example:- Looking at the Ulcer Ratio of 8.01 in the last 5 years of Margaritaville Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (9.45 )
- Compared with SPY (10 ) in the period of the last 3 years, the Downside risk index of 9.17 is smaller, thus better.

'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 Margaritaville Portfolio is -23.1 days, which is larger, thus better compared to the benchmark SPY (-33.7 days) in the same period.
- Compared with SPY (-24.5 days) in the period of the last 3 years, the maximum DrawDown of -22.4 days is larger, thus better.

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Which means for our asset as example:- Looking at the maximum days below previous high of 388 days in the last 5 years of Margaritaville Portfolio, we see it is relatively larger, thus worse in comparison to the benchmark SPY (351 days)
- Compared with SPY (351 days) in the period of the last 3 years, the maximum days under water of 388 days is greater, thus worse.

'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:- Looking at the average days below previous high of 90 days in the last 5 years of Margaritaville Portfolio, we see it is relatively higher, thus worse in comparison to the benchmark SPY (78 days)
- Compared with SPY (101 days) in the period of the last 3 years, the average days below previous high of 120 days is higher, thus worse.

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 Margaritaville 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.