Description of Volatility less than 15%

This portfolio has been optimized for achieving the highest possible return while limiting the historical volatility to 15% or less over the analyzed period. As a reference, the volatility limit of 15% is slightly below the historical volatility, or risk, of the SPDR S&P 500 (SPY). This is an aggressive portfolio suited for investors with a relatively high risk tolerance and aggressive 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 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 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 Volatility less than 15% (YTD)

What do these metrics mean? Show Details

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Using this definition on our asset we see for example:
  • Looking at the total return, or increase in value of 235.1% in the last 5 years of Volatility 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 102.7%, which is higher, thus better than the value of 53.9% from the benchmark.

CAGR:

'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 SPY (10.9%) in the period of the last 5 years, the annual performance (CAGR) of 27.4% of Volatility less than 15% is greater, thus better.
  • Compared with SPY (15.5%) in the period of the last 3 years, the compounded annual growth rate (CAGR) of 26.6% is higher, thus better.

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 historical 30 days volatility over 5 years of Volatility less than 15% is 11.6%, which is lower, thus better compared to the benchmark SPY (13.2%) in the same period.
  • Looking at volatility in of 11.5% in the period of the last 3 years, we see it is relatively lower, thus better in comparison to SPY (12.6%).

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:
  • Compared with the benchmark SPY (14.6%) in the period of the last 5 years, the downside deviation of 13.3% of Volatility less than 15% is lower, thus better.
  • Compared with SPY (14.2%) in the period of the last 3 years, the downside risk of 13.4% is lower, thus better.

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:
  • The ratio of return and volatility (Sharpe) over 5 years of Volatility less than 15% is 2.15, which is larger, thus better compared to the benchmark SPY (0.64) in the same period.
  • Compared with SPY (1.03) in the period of the last 3 years, the risk / return profile (Sharpe) of 2.09 is greater, thus better.

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (0.58) in the period of the last 5 years, the downside risk / excess return profile of 1.87 of Volatility less than 15% is greater, thus better.
  • During the last 3 years, the excess return divided by the downside deviation is 1.79, which is higher, thus better than the value of 0.91 from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • The Ulcer Ratio over 5 years of Volatility less than 15% is 2.03 , which is lower, thus worse compared to the benchmark SPY (3.93 ) in the same period.
  • Compared with SPY (3.95 ) in the period of the last 3 years, the Downside risk index of 1.98 is lower, thus worse.

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 reduction from previous high of -8.4 days in the last 5 years of Volatility less than 15%, we see it is relatively greater, thus better in comparison to the benchmark SPY (-19.3 days)
  • Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum reduction from previous high of -7.6 days is larger, thus better.

MaxDuration:

'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). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

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 days below previous high of 60 days of Volatility less than 15% is smaller, thus better.
  • Looking at maximum days under water in of 60 days in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (131 days).

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:
  • Looking at the average time in days below previous high water mark of 13 days in the last 5 years of Volatility less than 15%, we see it is relatively smaller, thus better in comparison to the benchmark SPY (37 days)
  • Compared with SPY (30 days) in the period of the last 3 years, the average days under water of 14 days is lower, thus better.

Performance of Volatility less than 15% (YTD)

Allocations of Volatility less than 15%
()

Allocations

Returns of Volatility less than 15% (%)

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