Description

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.

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 volatility less than 12%.

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%)
  • US Market Strategy (USMarket) (0% to 50%)
  • US Sector Rotation Strategy (USSECT) (0% to 50%)
  • World Top 4 Strategy (WTOP4) (0% to 50%)

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (100.7%) in the period of the last 5 years, the total return of 115.6% of Moderate Risk Portfolio is greater, thus better.
  • During the last 3 years, the total return, or performance is 25.8%, which is smaller, thus worse than the value of 33.2% from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the annual return (CAGR) of 16.6% in the last 5 years of Moderate Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (15%)
  • Looking at compounded annual growth rate (CAGR) in of 8% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (10%).

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Applying this definition to our asset in some examples:
  • The historical 30 days volatility over 5 years of Moderate Risk Portfolio is 9.3%, which is smaller, thus better compared to the benchmark SPY (20.9%) in the same period.
  • Compared with SPY (17.3%) in the period of the last 3 years, the historical 30 days volatility of 7.7% is lower, thus better.

DownVol:

'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:
  • Looking at the downside deviation of 6.6% in the last 5 years of Moderate Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (15%)
  • Compared with SPY (12%) in the period of the last 3 years, the downside deviation of 5.4% is lower, thus better.

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 risk / return profile (Sharpe) over 5 years of Moderate Risk Portfolio is 1.52, which is greater, thus better compared to the benchmark SPY (0.6) in the same period.
  • During the last 3 years, the ratio of return and volatility (Sharpe) is 0.71, which is higher, thus better than the value of 0.44 from the benchmark.

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.'

Using this definition on our asset we see for example:
  • Looking at the excess return divided by the downside deviation of 2.15 in the last 5 years of Moderate Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.83)
  • Looking at ratio of annual return and downside deviation in of 1.02 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.62).

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.'

Using this definition on our asset we see for example:
  • The Ulcer Index over 5 years of Moderate Risk Portfolio is 2.66 , which is lower, thus better compared to the benchmark SPY (9.32 ) in the same period.
  • Compared with SPY (10 ) in the period of the last 3 years, the Ulcer Index of 2.79 is smaller, thus better.

MaxDD:

'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 -14.3 days in the last 5 years of Moderate Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (-33.7 days)
  • During the last 3 years, the maximum DrawDown is -9.5 days, which is greater, 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) in days.'

Using this definition on our asset we see for example:
  • Looking at the maximum days under water of 256 days in the last 5 years of Moderate Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (488 days)
  • During the last 3 years, the maximum time in days below previous high water mark is 256 days, which is smaller, thus better than the value of 488 days from the benchmark.

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 (123 days) in the period of the last 5 years, the average time in days below previous high water mark of 44 days of Moderate Risk Portfolio is smaller, thus better.
  • Compared with SPY (180 days) in the period of the last 3 years, the average days under water of 60 days is smaller, 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 Moderate Risk Portfolio are hypothetical and do not account for slippage, fees or taxes.
  • Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.