Description of Volatility less than 7%

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.

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 7%.

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%)

Statistics of Volatility less than 7% (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.'

Which means for our asset as example:
  • Looking at the total return, or performance of 91.7% in the last 5 years of Volatility less than 7%, we see it is relatively higher, thus better in comparison to the benchmark SPY (80.9%)
  • During the last 3 years, the total return, or performance is 55.2%, which is larger, thus better than the value of 54.7% 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:
  • Compared with the benchmark SPY (12.6%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 13.9% of Volatility less than 7% is larger, thus better.
  • During the last 3 years, the compounded annual growth rate (CAGR) is 15.8%, which is larger, thus better than the value of 15.7% from the benchmark.

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Which means for our asset as example:
  • Compared with the benchmark SPY (13.3%) in the period of the last 5 years, the 30 days standard deviation of 5.7% of Volatility less than 7% is lower, thus better.
  • Looking at volatility in of 5.3% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (12.8%).

DownVol:

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

Which means for our asset as example:
  • Looking at the downside deviation of 6.5% 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%)
  • During the last 3 years, the downside risk is 6.2%, which is lower, thus better than the value of 14.8% from the benchmark.

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Applying this definition to our asset in some examples:
  • Looking at the risk / return profile (Sharpe) of 1.99 in the last 5 years of Volatility less than 7%, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.76)
  • Compared with SPY (1.03) in the period of the last 3 years, the Sharpe Ratio of 2.52 is greater, thus better.

Sortino:

'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.'

Which means for our asset as example:
  • Looking at the excess return divided by the downside deviation of 1.76 in the last 5 years of Volatility less than 7%, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.68)
  • Compared with SPY (0.89) in the period of the last 3 years, the ratio of annual return and downside deviation of 2.16 is greater, thus better.

Ulcer:

'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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (3.97 ) in the period of the last 5 years, the Ulcer Index of 1.21 of Volatility less than 7% is lower, thus better.
  • During the last 3 years, the Downside risk index is 0.97 , which is smaller, thus better than the value of 4.1 from the benchmark.

MaxDD:

'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.'

Using this definition on our asset we see for example:
  • Looking at the maximum drop from peak to valley 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)
  • During the last 3 years, the maximum DrawDown is -4.6 days, which is greater, thus better than the value of -19.3 days from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the maximum days under water of 135 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)
  • Compared with SPY (139 days) in the period of the last 3 years, the maximum days under water of 80 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:
  • Compared with the benchmark SPY (42 days) in the period of the last 5 years, the average days under water of 23 days of Volatility less than 7% is lower, thus better.
  • Compared with SPY (37 days) in the period of the last 3 years, the average days under water of 16 days is lower, thus better.

Performance of Volatility less than 7% (YTD)

Historical returns have been extended using synthetic data.

Allocations of Volatility less than 7%
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Allocations

Returns of Volatility less than 7% (%)

  • 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.