Description of Max Drawdown less than 15%

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 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 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:

Statistics of Max Drawdown less than 15% (YTD)

What do these metrics mean? Show Details

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.'

Applying this definition to our asset in some examples:
  • Looking at the total return, or performance of 200.7% in the last 5 years of Max Drawdown less than 15%, we see it is relatively higher, thus better in comparison to the benchmark SPY (68%)
  • During the last 3 years, the total return, or increase in value is 91.7%, which is greater, thus better than the value of 53.9% 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.'

Using this definition on our asset we see for example:
  • Looking at the annual performance (CAGR) of 24.7% in the last 5 years of Max Drawdown less than 15%, we see it is relatively larger, thus better in comparison to the benchmark SPY (10.9%)
  • Looking at compounded annual growth rate (CAGR) in of 24.3% in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (15.5%).

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.'

Using this definition on our asset we see for example:
  • The 30 days standard deviation over 5 years of Max Drawdown less than 15% is 10.6%, which is lower, thus better compared to the benchmark SPY (13.2%) in the same period.
  • During the last 3 years, the historical 30 days volatility is 10.4%, which is lower, thus better than the value of 12.6% from the benchmark.

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:
  • Looking at the downside risk of 11.8% 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 (14.6%)
  • Looking at downside deviation in of 11.7% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (14.2%).

Sharpe:

'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.'

Applying this definition to our asset in some examples:
  • Looking at the risk / return profile (Sharpe) of 2.08 in the last 5 years of Max Drawdown less than 15%, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.64)
  • During the last 3 years, the Sharpe Ratio is 2.09, which is greater, thus better than the value of 1.03 from the benchmark.

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.'

Which means for our asset as example:
  • Looking at the ratio of annual return and downside deviation of 1.88 in the last 5 years of Max Drawdown less than 15%, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.58)
  • Compared with SPY (0.91) in the period of the last 3 years, the ratio of annual return and downside deviation of 1.86 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.'

Which means for our asset as example:
  • The Ulcer Index over 5 years of Max Drawdown less than 15% is 1.76 , which is lower, thus worse compared to the benchmark SPY (3.93 ) in the same period.
  • During the last 3 years, the Ulcer Ratio is 1.76 , which is lower, thus worse than the value of 3.95 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:
  • The maximum DrawDown over 5 years of Max Drawdown less than 15% is -6.3 days, which is higher, thus better compared to the benchmark SPY (-19.3 days) in the same period.
  • During the last 3 years, the maximum DrawDown is -6.3 days, which is larger, 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 62 days of Max Drawdown less than 15% is smaller, thus better.
  • During the last 3 years, the maximum time in days below previous high water mark is 62 days, which is smaller, thus better than the value of 131 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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (37 days) in the period of the last 5 years, the average days under water of 14 days of Max Drawdown less than 15% is lower, thus better.
  • Compared with SPY (30 days) in the period of the last 3 years, the average days under water of 16 days is smaller, thus better.

Performance of Max Drawdown less than 15% (YTD)

Allocations of Max Drawdown less than 15%
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Allocations

Returns of Max Drawdown less than 15% (%)

Annual returns of Max Drawdown less than 15% do not equal the sum of monthly returns due to compounding.
Performance results of Max Drawdown less than 15% 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.