**Recommended for:** Capital preservation, liquidity and for investors close to or in retirement.

The Conservative Portfolio is appropriate for an investor with a low risk tolerance or a need to make withdrawals over the next 1 to 3 years. Conservative investors are willing to accept lower returns in exchange for lower account drawdowns in periods of market volatility.

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 offer a portfolio version for 401k plans which do not allow individual stocks - this is set with a moderate risk level, but actually results in a volatility which might also be acceptable for those looking for a conservative set. 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 40%)
- BUG Permanent Portfolio Strategy (BUG) (0% to 40%)
- Global Market Rotation Strategy (GMRS) (0% to 40%)
- Global Sector Rotation Strategy (GSRS) (0% to 40%)
- Hedge Strategy (HEDGE) (0% to 40%)
- Short Term Bond Strategy (STBS) (0% to 50%)
- Universal Investment Strategy (UIS) (0% to 40%)
- US Market Strategy (USMarket) (0% to 40%)
- US Sector Rotation Strategy (USSECT) (0% to 40%)
- World Top 4 Strategy (WTOP4) (0% to 40%)

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (94.9%) in the period of the last 5 years, the total return, or increase in value of 59.8% of Conservative Risk Portfolio is smaller, thus worse.
- Compared with SPY (22.5%) in the period of the last 3 years, the total return of 15.8% 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.'

Using this definition on our asset we see for example:- Looking at the annual performance (CAGR) of 9.8% in the last 5 years of Conservative Risk Portfolio, we see it is relatively smaller, thus worse in comparison to the benchmark SPY (14.3%)
- During the last 3 years, the annual performance (CAGR) is 5%, which is lower, thus worse than the value of 7% 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.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (20.9%) in the period of the last 5 years, the volatility of 7.2% of Conservative Risk Portfolio is smaller, thus better.
- Looking at historical 30 days 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 (17.5%).

'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%) in the period of the last 5 years, the downside volatility of 5.2% of Conservative Risk Portfolio is lower, thus better.
- Looking at downside volatility in of 3.2% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (12.3%).

'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.'

Which means for our asset as example:- Looking at the ratio of return and volatility (Sharpe) of 1.03 in the last 5 years of Conservative Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.56)
- During the last 3 years, the ratio of return and volatility (Sharpe) is 0.53, which is greater, thus better than the value of 0.26 from the benchmark.

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

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 excess return divided by the downside deviation of 1.41 of Conservative Risk Portfolio is greater, thus better.
- Looking at downside risk / excess return profile in of 0.78 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.37).

'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.'

Applying this definition to our asset in some examples:- Looking at the Ulcer Ratio of 2.08 in the last 5 years of Conservative Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (9.32 )
- During the last 3 years, the Ulcer Index is 1.9 , which is lower, thus better than the value of 10 from the benchmark.

'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 DrawDown of -14.8 days of Conservative Risk Portfolio is larger, thus better.
- Looking at maximum reduction from previous high in of -5.2 days in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (-24.5 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:- The maximum time in days below previous high water mark over 5 years of Conservative Risk Portfolio is 227 days, which is lower, thus better compared to the benchmark SPY (488 days) in the same period.
- During the last 3 years, the maximum days below previous high is 227 days, which is lower, thus better than the value of 488 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.'

Applying this definition to our asset in some examples:- Looking at the average days below previous high of 43 days in the last 5 years of Conservative Risk Portfolio, we see it is relatively lower, thus better in comparison to the benchmark SPY (123 days)
- During the last 3 years, the average days under water is 54 days, which is lower, thus better than the value of 179 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 Conservative 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.