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 10%. 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 moderate Portfolio suited for investors with a limited risk tolerance and moderate 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

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 (0% to 100%)
- BUG Permanent Portfolio Strategy (0% to 100%)
- World Top 4 Strategy (0% to 100%)
- Global Sector Rotation Strategy (0% to 100%)
- Global Market Rotation Strategy (0% to 100%)
- Maximum Yield Strategy (0% to 100%)
- NASDAQ 100 Strategy (0% to 100%)
- Leveraged Gold-Currency Strategy (0% to 100%)
- US Sector Rotation Strategy (0% to 100%)
- Leveraged Universal Investment Strategy (0% to 100%)
- US Market Strategy (0% to 100%)
- Dow 30 Strategy (0% to 100%)
- Universal Investment Strategy (0% to 100%)

'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:- Compared with the benchmark SPY (68%) in the period of the last 5 years, the total return, or increase in value of 147% of Max Drawdown less than 10% is greater, thus better.
- Looking at total return, or performance in of 73.1% in the period of the last 3 years, we see it is relatively higher, thus better in comparison to SPY (53.9%).

'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.'

Using this definition on our asset we see for example:- Looking at the compounded annual growth rate (CAGR) of 19.8% in the last 5 years of Max Drawdown less than 10%, we see it is relatively higher, thus better in comparison to the benchmark SPY (10.9%)
- During the last 3 years, the annual return (CAGR) is 20.1%, which is larger, thus better than the value of 15.5% 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:- Looking at the 30 days standard deviation of 8.1% in the last 5 years of Max Drawdown less than 10%, we see it is relatively smaller, thus better in comparison to the benchmark SPY (13.2%)
- Compared with SPY (12.6%) in the period of the last 3 years, the historical 30 days volatility of 7.7% is lower, thus better.

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

Applying this definition to our asset in some examples:- Looking at the downside volatility of 9.1% in the last 5 years of Max Drawdown less than 10%, we see it is relatively lower, thus better in comparison to the benchmark SPY (14.6%)
- Compared with SPY (14.2%) in the period of the last 3 years, the downside volatility of 8.8% is lower, thus better.

'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.'

Which means for our asset as example:- Looking at the ratio of return and volatility (Sharpe) of 2.13 in the last 5 years of Max Drawdown less than 10%, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.64)
- During the last 3 years, the ratio of return and volatility (Sharpe) is 2.29, which is greater, thus better than the value of 1.03 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.'

Using this definition on our asset we see for example:- The excess return divided by the downside deviation over 5 years of Max Drawdown less than 10% is 1.91, which is higher, thus better compared to the benchmark SPY (0.58) in the same period.
- During the last 3 years, the excess return divided by the downside deviation is 2, which is higher, thus better than the value of 0.91 from the benchmark.

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Using this definition on our asset we see for example:- Compared with the benchmark SPY (3.93 ) in the period of the last 5 years, the Ulcer Ratio of 1.31 of Max Drawdown less than 10% is smaller, thus worse.
- During the last 3 years, the Ulcer Index is 1.22 , which is lower, thus worse than the value of 3.95 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 (-19.3 days) in the period of the last 5 years, the maximum drop from peak to valley of -4.9 days of Max Drawdown less than 10% is greater, thus better.
- Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum DrawDown of -4.9 days is greater, 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) in days.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days below previous high of 97 days of Max Drawdown less than 10% is lower, thus better.
- Looking at maximum days below previous high in of 97 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (131 days).

'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:- The average days below previous high over 5 years of Max Drawdown less than 10% is 16 days, which is lower, thus better compared to the benchmark SPY (37 days) in the same period.
- Looking at average days under water in of 17 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (30 days).

Allocations and holdings shown below are delayed by one month. To see current trading allocations of Max Drawdown less than 10%, register now.

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Performance results of Max Drawdown less than 10% are hypothetical, do not account for slippage, execution cost and taxes, and based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.