Description

This portfolio has been optimized for achieving the highest possible return while limiting the maximum Drawdown, that is the highest drop from peak to valley over the analyzed period, to 15%. As a reference, the maximum experienced drawdown of the iShares 20+ Year Treasury Bond ETF (TLT) over the same period has been 27%, while the SPDR S&P 500 (SPY) experienced a drop of 55%.

As such it is a aggressive Portfolio suited for investors with a higher risk tolerance and aggressive growth expectations.

Please note that the Maximum DrawDown refers to a single event, for analyzing the risk of losses you should also consider other related metrics like the maximum and average duration and the Ulcer Ratio. A more reliable measure for the downside risk of an asset over a period of time is the Downside Deviation or Volatility.

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.

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 maximum drawdown less than 15%.

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%)
  • Global Market Rotation Strategy (GMRS) (0% to 100%)
  • Global Sector Rotation Strategy (GSRS) (0% to 100%)
  • Maximum Yield Strategy (MYRS) (0% to 100%)
  • Short Term Bond Strategy (STBS) (0% to 100%)
  • Universal Investment Strategy (UIS) (0% to 100%)
  • Universal Investment Strategy 2x Leverage (UISx2) (0% to 100%)
  • US Market Strategy (USMarket) (0% to 100%)
  • US Market Strategy 2x Leverage (USMx2) (0% to 100%)
  • US Sector Rotation Strategy (USSECT) (0% to 100%)
  • World Top 4 Strategy (WTOP4) (0% to 100%)

Statistics (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'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.'

Using this definition on our asset we see for example:
  • The total return, or increase in value over 5 years of Max Drawdown less than 15% is 64.9%, which is lower, thus worse compared to the benchmark SPY (109.7%) in the same period.
  • Looking at total return, or performance in of 36.4% in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to SPY (70.1%).

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:
  • The annual performance (CAGR) over 5 years of Max Drawdown less than 15% is 10.6%, which is lower, thus worse compared to the benchmark SPY (16%) in the same period.
  • Compared with SPY (19.5%) in the period of the last 3 years, the annual return (CAGR) of 11% is lower, thus worse.

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.'

Which means for our asset as example:
  • Looking at the 30 days standard deviation of 7.1% in the last 5 years of Max Drawdown less than 15%, we see it is relatively smaller, thus better in comparison to the benchmark SPY (17.5%)
  • Compared with SPY (17.4%) in the period of the last 3 years, the historical 30 days volatility of 6.9% is smaller, thus better.

DownVol:

'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 Max Drawdown less than 15% is 5%, which is lower, thus better compared to the benchmark SPY (12.1%) in the same period.
  • Compared with SPY (11.5%) in the period of the last 3 years, the downside deviation of 4.7% is smaller, 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.'

Applying this definition to our asset in some examples:
  • The Sharpe Ratio over 5 years of Max Drawdown less than 15% is 1.13, which is larger, thus better compared to the benchmark SPY (0.77) in the same period.
  • Looking at Sharpe Ratio in of 1.23 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.97).

Sortino:

'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 (1.12) in the period of the last 5 years, the ratio of annual return and downside deviation of 1.62 of Max Drawdown less than 15% is larger, thus better.
  • During the last 3 years, the downside risk / excess return profile is 1.8, which is greater, thus better than the value of 1.47 from the benchmark.

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:
  • Looking at the Ulcer Index of 2.14 in the last 5 years of Max Drawdown less than 15%, we see it is relatively smaller, thus better in comparison to the benchmark SPY (8.48 )
  • Compared with SPY (5.3 ) in the period of the last 3 years, the Ulcer Index of 1.85 is smaller, thus better.

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Which means for our asset as example:
  • Compared with the benchmark SPY (-24.5 days) in the period of the last 5 years, the maximum drop from peak to valley of -8.1 days of Max Drawdown less than 15% is higher, thus better.
  • Looking at maximum drop from peak to valley in of -6.7 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (-18.8 days).

MaxDuration:

'The Maximum 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. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (488 days) in the period of the last 5 years, the maximum days below previous high of 196 days of Max Drawdown less than 15% is lower, thus better.
  • Compared with SPY (199 days) in the period of the last 3 years, the maximum days under water of 103 days is smaller, thus better.

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.'

Using this definition on our asset we see for example:
  • Looking at the average days under water of 33 days in the last 5 years of Max Drawdown less than 15%, we see it is relatively lower, thus better in comparison to the benchmark SPY (120 days)
  • Compared with SPY (47 days) in the period of the last 3 years, the average days under water of 25 days is lower, 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 Max Drawdown less than 15% 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.