Description of Aggressive Risk Portfolio

Recommended for: Capital growth, speculation and young investors.

The Aggressive Risk Portfolio is appropriate for an investor with a high risk tolerance and a time horizon longer than 10 years. Aggressive investors should be willing to accept periods of extreme ups and downs in exchange for the possibility of receiving higher relative returns over the long term. A longer time horizon is needed to allow time for investments to recover in the event of a sharp downturn. This portfolio is heavily weighted with stocks which are historically more volatile than bonds.

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.

Methodology & Assets
This portfolio is constructed by our proprietary optimization alogrithm 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 16%.

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 60%)
  • BUG Permanent Portfolio Strategy (BUG) (0% to 60%)
  • World Top 4 Strategy (WTOP4) (0% to 60%)
  • Global Sector Rotation Strategy (GSRS) (0% to 60%)
  • Global Market Rotation Strategy (GMRS) (0% to 60%)
  • NASDAQ 100 Strategy (NAS100) (0% to 60%)
  • US Sector Rotation Strategy (USSECT) (0% to 60%)
  • Leveraged Universal Investment Strategy (UISx3) (0% to 15%)
  • Universal Investment Strategy (UIS) (0% to 60%)
  • US Market Strategy (USMarket) (0% to 60%)
  • Dow 30 Strategy (DOW30) (0% to 60%)
  • Short Term Bond Strategy (STBS) (0% to 60%)

Statistics of Aggressive Risk Portfolio (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.'

Using this definition on our asset we see for example:
  • The total return over 5 years of Aggressive Risk Portfolio is 191.6%, which is higher, thus better compared to the benchmark SPY (61.9%) in the same period.
  • Looking at total return in of 81.8% in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (41.8%).

CAGR:

'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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (10.1%) in the period of the last 5 years, the annual performance (CAGR) of 23.9% of Aggressive Risk Portfolio is higher, thus better.
  • During the last 3 years, the compounded annual growth rate (CAGR) is 22.1%, which is higher, thus better than the value of 12.4% from the benchmark.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:
  • The historical 30 days volatility over 5 years of Aggressive Risk Portfolio is 12.8%, which is smaller, thus better compared to the benchmark SPY (13.6%) in the same period.
  • Compared with SPY (12.8%) in the period of the last 3 years, the historical 30 days volatility of 12.6% is lower, 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.'

Which means for our asset as example:
  • Compared with the benchmark SPY (14.8%) in the period of the last 5 years, the downside deviation of 14.5% of Aggressive Risk Portfolio is lower, thus better.
  • Looking at downside risk in of 14.2% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (14.4%).

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.'

Using this definition on our asset we see for example:
  • Looking at the ratio of return and volatility (Sharpe) of 1.67 in the last 5 years of Aggressive Risk Portfolio, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.56)
  • Looking at ratio of return and volatility (Sharpe) in of 1.55 in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (0.77).

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.'

Using this definition on our asset we see for example:
  • The downside risk / excess return profile over 5 years of Aggressive Risk Portfolio is 1.47, which is higher, thus better compared to the benchmark SPY (0.51) in the same period.
  • Compared with SPY (0.68) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.38 is greater, thus better.

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:
  • Compared with the benchmark SPY (4.01 ) in the period of the last 5 years, the Ulcer Ratio of 3.06 of Aggressive Risk Portfolio is lower, thus better.
  • During the last 3 years, the Ulcer Ratio is 3.21 , which is lower, thus better than the value of 4.08 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.'

Applying this definition to our asset in some examples:
  • The maximum drop from peak to valley over 5 years of Aggressive Risk Portfolio is -11.2 days, which is larger, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • Looking at maximum DrawDown in of -11.2 days in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (-19.3 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.'

Using this definition on our asset we see for example:
  • The maximum days below previous high over 5 years of Aggressive Risk Portfolio is 158 days, which is lower, thus better compared to the benchmark SPY (187 days) in the same period.
  • During the last 3 years, the maximum time in days below previous high water mark is 158 days, which is greater, thus worse than the value of 139 days from the benchmark.

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.'

Which means for our asset as example:
  • The average days under water over 5 years of Aggressive Risk Portfolio is 29 days, which is smaller, thus better compared to the benchmark SPY (41 days) in the same period.
  • During the last 3 years, the average days under water is 35 days, which is greater, thus worse than the value of 35 days from the benchmark.

Performance of Aggressive Risk Portfolio (YTD)

Historical returns have been extended using synthetic data.

Allocations of Aggressive Risk Portfolio
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Allocations

Returns of Aggressive Risk Portfolio (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Aggressive 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.