The Short Term Bond Strategy is essentially a place to park cash that earns interest. When combined with other higher risk strategies it creates a lower risk portfolio and generally improves the portfolio's Sharpe ratio. If your broker pays interest on cash balances that is comparable to the current yield of this strategy, you can choose to keep this allocation in cash instead.

This strategy switches between very low risk ETFs that hold short term corporate or treasury bonds including GSY, MINT and NEAR.

'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 of 10% in the last 5 years of Short Term Bond Strategy, we see it is relatively lower, thus worse in comparison to the benchmark TLT (52%)
- During the last 3 years, the total return, or increase in value is 6.5%, which is lower, thus worse than the value of 39.6% from the benchmark.

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:- Compared with the benchmark TLT (8.7%) in the period of the last 5 years, the annual return (CAGR) of 1.9% of Short Term Bond Strategy is smaller, thus worse.
- Compared with TLT (11.8%) in the period of the last 3 years, the annual performance (CAGR) of 2.1% is lower, thus worse.

'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.'

Using this definition on our asset we see for example:- Looking at the volatility of 3.2% in the last 5 years of Short Term Bond Strategy, we see it is relatively smaller, thus better in comparison to the benchmark TLT (13.8%)
- Looking at historical 30 days volatility in of 4.2% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to TLT (15%).

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. 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:- The downside deviation over 5 years of Short Term Bond Strategy is 2.9%, which is lower, thus better compared to the benchmark TLT (9.4%) in the same period.
- Compared with TLT (10.1%) in the period of the last 3 years, the downside deviation of 3.8% is lower, thus better.

'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.'

Using this definition on our asset we see for example:- Looking at the risk / return profile (Sharpe) of -0.17 in the last 5 years of Short Term Bond Strategy, we see it is relatively lower, thus worse in comparison to the benchmark TLT (0.45)
- Looking at Sharpe Ratio in of -0.09 in the period of the last 3 years, we see it is relatively smaller, thus worse in comparison to TLT (0.62).

'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:- The excess return divided by the downside deviation over 5 years of Short Term Bond Strategy is -0.19, which is lower, thus worse compared to the benchmark TLT (0.66) in the same period.
- Compared with TLT (0.92) in the period of the last 3 years, the excess return divided by the downside deviation of -0.1 is smaller, thus worse.

'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.'

Applying this definition to our asset in some examples:- Looking at the Ulcer Index of 0.68 in the last 5 years of Short Term Bond Strategy, we see it is relatively lower, thus better in comparison to the benchmark TLT (9.13 )
- During the last 3 years, the Downside risk index is 0.88 , which is smaller, thus better than the value of 4.65 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.'

Using this definition on our asset we see for example:- The maximum DrawDown over 5 years of Short Term Bond Strategy is -9.6 days, which is larger, thus better compared to the benchmark TLT (-17.9 days) in the same period.
- Compared with TLT (-15.7 days) in the period of the last 3 years, the maximum DrawDown of -9.6 days is higher, thus better.

'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:- Looking at the maximum days below previous high of 140 days in the last 5 years of Short Term Bond Strategy, we see it is relatively lower, thus better in comparison to the benchmark TLT (749 days)
- Looking at maximum time in days below previous high water mark in of 140 days in the period of the last 3 years, we see it is relatively lower, thus better in comparison to TLT (315 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.'

Applying this definition to our asset in some examples:- Looking at the average time in days below previous high water mark of 20 days in the last 5 years of Short Term Bond Strategy, we see it is relatively smaller, thus better in comparison to the benchmark TLT (246 days)
- During the last 3 years, the average time in days below previous high water mark is 31 days, which is lower, thus better than the value of 88 days from the benchmark.

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Short Term Bond Strategy 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.