**Recommended for:** Capital accumulation, savers and investors 10-20 years from retirement.

The Moderate Risk Portfolio is appropriate for an investor with a medium risk tolerance and a time horizon longer than five years. Moderate investors are willing to accept periods of moderate market volatility in exchange for the possibility of receiving returns that outpace inflation by a significant margin.

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 also offer a version for 401k plans which do not allow individual stocks. 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 50%)
- BUG Permanent Portfolio Strategy (BUG) (0% to 50%)
- Global Market Rotation Strategy (GMRS) (0% to 50%)
- Global Sector Rotation Strategy (GSRS) (0% to 50%)
- Hedge Strategy (HEDGE) (0% to 40%)
- Short Term Bond Strategy (STBS) (0% to 50%)
- Universal Investment Strategy (UIS) (0% to 50%)
- Universal Investment Strategy 2x Leverage (UISx2) (0% to 30%)
- US Market Strategy (USMarket) (0% to 50%)
- US Market Strategy 2x Leverage (USMx2) (0% to 30%)
- US Sector Rotation Strategy (USSECT) (0% to 50%)
- World Top 4 Strategy (WTOP4) (0% to 50%)

'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.'

Which means for our asset as example:- Looking at the total return, or performance of 82.3% in the last 5 years of Moderate Risk Portfolio, we see it is relatively lower, thus worse in comparison to the benchmark SPY (121.2%)
- Compared with SPY (67.5%) in the period of the last 3 years, the total return, or increase in value of 36.4% is lower, thus worse.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (17.2%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 12.8% of Moderate Risk Portfolio is lower, thus worse.
- During the last 3 years, the compounded annual growth rate (CAGR) is 10.9%, which is smaller, thus worse than the value of 18.7% from the benchmark.

'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.'

Which means for our asset as example:- Looking at the historical 30 days volatility of 9.1% in the last 5 years of Moderate Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (18.7%)
- Looking at volatility in of 10.7% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (22.5%).

'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:- The downside deviation over 5 years of Moderate Risk Portfolio is 6.5%, which is lower, thus better compared to the benchmark SPY (13.6%) in the same period.
- During the last 3 years, the downside deviation is 7.7%, which is lower, thus better than the value of 16.3% from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.79) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.13 of Moderate Risk Portfolio is higher, thus better.
- Looking at risk / return profile (Sharpe) in of 0.79 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (0.72).

'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 (1.08) in the period of the last 5 years, the excess return divided by the downside deviation of 1.58 of Moderate Risk Portfolio is greater, thus better.
- Looking at ratio of annual return and downside deviation in of 1.09 in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (1).

'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.'

Which means for our asset as example:- The Ulcer Ratio over 5 years of Moderate Risk Portfolio is 2.09 , which is lower, thus better compared to the benchmark SPY (5.59 ) in the same period.
- During the last 3 years, the Downside risk index is 2.56 , which is smaller, thus better than the value of 6.83 from the benchmark.

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (-33.7 days) in the period of the last 5 years, the maximum DrawDown of -16.9 days of Moderate Risk Portfolio is greater, thus better.
- Looking at maximum drop from peak to valley in of -16.9 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (-33.7 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'

Applying this definition to our asset in some examples:- Looking at the maximum time in days below previous high water mark of 87 days in the last 5 years of Moderate Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (139 days)
- During the last 3 years, the maximum days below previous high is 87 days, which is smaller, thus better than the value of 139 days from the benchmark.

'The Average 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. 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:- The average days below previous high over 5 years of Moderate Risk Portfolio is 19 days, which is lower, thus better compared to the benchmark SPY (33 days) in the same period.
- During the last 3 years, the average time in days below previous high water mark is 20 days, which is lower, thus better than the value of 35 days from the benchmark.

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 Moderate 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.