This portfolio has been optimized for achieving the highest possible return while limiting the historical volatility to 7% or less over the analyzed period with the involved assets. The volatility limit of 7% equals about half the volatility, or risk, of the iShares 20+ Year Treasury Bond ETF - TLT.

As such it is a very conservative Portfolio suited for very risk adverse investors with conservative growth expectations.

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.

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%)
- World Top 4 Strategy (WTOP4) (0% to 100%)
- Global Sector Rotation Strategy (GSRS) (0% to 100%)
- Global Market Rotation Strategy (GMRS) (0% to 100%)
- Maximum Yield Strategy (MYRS) (0% to 100%)
- NASDAQ 100 Strategy (NAS100) (0% to 100%)
- Leveraged Gold-Currency Strategy (GLD-USD) (0% to 100%)
- US Sector Rotation Strategy (USSECT) (0% to 100%)
- Leveraged Universal Investment Strategy (UISx3) (0% to 100%)
- US Market Strategy (USMarket) (0% to 100%)
- Dow 30 Strategy (DOW30) (0% to 100%)
- Universal Investment Strategy (UIS) (0% to 100%)

'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:- Compared with the benchmark SPY (81.7%) in the period of the last 5 years, the total return, or increase in value of 107.9% of Volatility less than 7% is larger, thus better.
- Looking at total return in of 69.6% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (54.7%).

'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.'

Which means for our asset as example:- The compounded annual growth rate (CAGR) over 5 years of Volatility less than 7% is 15.8%, which is greater, thus better compared to the benchmark SPY (12.7%) in the same period.
- During the last 3 years, the annual performance (CAGR) is 19.2%, which is larger, thus better than the value of 15.6% from the benchmark.

'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.'

Which means for our asset as example:- Looking at the volatility of 6.7% in the last 5 years of Volatility less than 7%, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.3%)
- Looking at volatility in of 6.9% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.8%).

'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.'

Which means for our asset as example:- Looking at the downside risk of 6.6% in the last 5 years of Volatility less than 7%, we see it is relatively lower, thus better in comparison to the benchmark SPY (14.8%)
- Compared with SPY (14.8%) in the period of the last 3 years, the downside volatility of 6.3% 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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.76) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 1.99 of Volatility less than 7% is larger, thus better.
- During the last 3 years, the Sharpe Ratio is 2.43, which is larger, thus better than the value of 1.03 from the benchmark.

'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:- The excess return divided by the downside deviation over 5 years of Volatility less than 7% is 2.01, which is greater, thus better compared to the benchmark SPY (0.69) in the same period.
- Looking at downside risk / excess return profile in of 2.65 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.89).

'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.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (3.97 ) in the period of the last 5 years, the Downside risk index of 1.26 of Volatility less than 7% is smaller, thus better.
- Looking at Ulcer Index in of 0.98 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (4.09 ).

'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.'

Which means for our asset as example:- Looking at the maximum DrawDown of -4.9 days in the last 5 years of Volatility less than 7%, we see it is relatively higher, thus better in comparison to the benchmark SPY (-19.3 days)
- Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum drop from peak to valley of -4.6 days is greater, thus better.

'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 days under water of 127 days in the last 5 years of Volatility less than 7%, we see it is relatively lower, thus better in comparison to the benchmark SPY (187 days)
- During the last 3 years, the maximum days below previous high is 80 days, which is lower, thus better than the value of 139 days from the benchmark.

'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 time in days below previous high water mark over 5 years of Volatility less than 7% is 24 days, which is lower, thus better compared to the benchmark SPY (42 days) in the same period.
- Looking at average days below previous high in of 16 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (37 days).

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 Volatility less than 7% 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.