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

'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 (93.6%) in the period of the last 5 years, the total return of 114.3% of Moderate Risk Portfolio is greater, thus better.
- Compared with SPY (33.2%) in the period of the last 3 years, the total return of 24.7% 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:- Looking at the annual performance (CAGR) of 16.5% in the last 5 years of Moderate Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (14.2%)
- During the last 3 years, the annual performance (CAGR) is 7.7%, which is smaller, thus worse than the value of 10% 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:- The 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 (17.5%) in the period of the last 3 years, the 30 days standard deviation of 7.9% is lower, thus better.

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Using this definition on our asset we see for example:- The downside deviation over 5 years of Moderate Risk Portfolio is 6.6%, which is lower, thus better compared to the benchmark SPY (15%) in the same period.
- Looking at downside volatility in of 5.6% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.2%).

'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.'

Using this definition on our asset we see for example:- Looking at the ratio of return and volatility (Sharpe) of 1.51 in the last 5 years of Moderate Risk Portfolio, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.56)
- Compared with SPY (0.43) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.65 is larger, thus better.

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.78) in the period of the last 5 years, the ratio of annual return and downside deviation of 2.13 of Moderate Risk Portfolio is greater, thus better.
- Compared with SPY (0.62) in the period of the last 3 years, the excess return divided by the downside deviation of 0.92 is higher, thus better.

'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:- Compared with the benchmark SPY (9.33 ) in the period of the last 5 years, the Ulcer Index of 2.66 of Moderate Risk Portfolio is smaller, thus better.
- During the last 3 years, the Ulcer Ratio is 2.8 , 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:- The maximum reduction from previous high over 5 years of Moderate Risk Portfolio is -14.3 days, which is greater, 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 reduction from previous high of -9.5 days is higher, 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:- The maximum days under water over 5 years of Moderate Risk Portfolio is 256 days, which is lower, thus better compared to the benchmark SPY (488 days) in the same period.
- 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.

'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 44 days in the last 5 years of Moderate 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 below previous high is 60 days, which is lower, thus better than the value of 180 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.