All of our total-return strategies share the same primary strategic components, are monitored daily, and are implemented using low-cost, high-liquidity exchange-traded funds; however, significant differences exist between them in terms of risk and return. For example, our more conservative portfolios always include a fixed percentage of bonds/interest-bearing cash, which reduces day-to-day fluctuations, as well as both risk and return. Strategy selection is tailored to your unique circumstances, needs, and desires, as we work closely with you to identify the best possible strategy or combination of strategies for you.

Aggressive

High Risk. Seeks maximal upside over long-term horizons while providing historically shallower drawdowns and faster recoveries than a 100% global equity portfolio. Expected max drawdown risk of 30%, with occasional rapid pullbacks. Extreme or gap-down markets may occasionally exceed this range. Equity allocation can reach 100%. No permanent safety allocation to bonds, but bond allocation can reach 85%.  During certain time periods, up to 25% of the portfolio can be allocated to 3x ETFs (stocks and bonds).

Growth

Moderately High Risk. Seeks growth with historically shallower drawdowns and faster recoveries than an 80% stock/20% bond portfolio. Expected max drawdown risk of 25%. Extreme or gap-down markets may occasionally exceed this range. Equity allocation can reach 100% during certain time periods. No permanent safety allocation to bonds, but bond allocation can reach 80%.

Moderate

Moderate Risk. Prioritizes steadier progress over higher returns. Reduced day-to-day fluctuations with historically shallower drawdowns and faster recoveries than a 60% stock/40% bond portfolio. Expected max drawdown risk of 20%. Extreme or gap-down markets may occasionally exceed this range. Permanent safety allocation to bonds is 17%, but bond allocation can reach 80%. Equity allocation can reach 80% during certain time periods.

Conservative

Low Risk. Safety first investing that still provides some growth. Low volatility with historically shallower drawdowns and faster recoveries than a 40% stock/60% bond portfolio. Expected max drawdown risk of 15%. Extreme or gap-down markets may occasionally exceed this range. Permanent Safety Allocation to Bonds is 45%, but bond allocation can reach 90%. Equity allocation can reach 50% during certain time periods.

Preservation

Ultra-Low Risk. Prioritizes capital stability. Very low volatility with historically shallower drawdowns and faster recoveries than a 30% stock/70% bond portfolio. Expected max drawdown risk of 9%. Extreme or gap-down markets may occasionally exceed this range. Permanent safety allocation to bonds is 60%, but bond allocation can reach 95%. Equity allocation can reach 33% during certain time periods.

401k

Growth, Moderate, and Conservative strategies can be implemented into Retirement accounts that are held with your employer (401k, 403b, etc.). However, employer retirement accounts tend to have 30-day trading restrictions and limited investment choices, resulting in lower performance and higher risk compared to the strategies above that have no restrictions.

What is backtesting? 

Backtesting is a key component (but certainly not a perfect one!) of effective portfolio management. It is accomplished by reconstructing, with historical data, what would have occurred in the past if the strategy had been used during that period. The results provide statistics to gauge the potential effectiveness of an investment strategy; however, they do not represent the actual portfolio performance, as client assets were not invested in these strategies during the backtesting period.

The following performance displayed represents hypothetical total returns and is net of our 1% annual advisory fee and all trading costs. The results include the reinvestment of interest and dividends, but do not account for taxes. We did not manage client assets in accordance with the strategies outlined during the entire period in question. Historical data and analysis should not be taken as an indication or guarantee of future performance; it’s simply a guide. Past performance is not a guarantee of future results, and future results may differ significantly from historical performance. All of the following results were obtained using only publicly traded exchange-traded funds, ETFs. Benchmarks are used, but there are limitations to making comparisons to benchmarks, as the benchmarks do not perfectly align with the strategy we use. They are simply given as a reference for what other financial advisors and the general public may use as their investment strategy.  The worst drawdown indicates the worst period of return for the portfolio during the entire backtesting period. While it should serve as a relative guide between the strategies, drawdowns could be worse in the future, as past performance is not a guarantee of future results. *While the backtests display how we are investing for today and for the future, our firm’s actual performance from 2009 until now is available upon request. 

The backtest starts in 2012, the earliest possible start date for all five of our strategies, given the common history of the exchange-traded funds (ETFs) we use. We can backtest to 2005 for most of our strategies (and such data is available upon request), but not all of them, due to the start date of certain ETFs. ETFs are relatively new ways to invest in diversified assets, so they do not have as long a history as market indexes, but ETFs do mirror indexes. So, while the backtest data below is relatively short in total years examined, numerous academic studies demonstrate the five pillars’ consistency over time by using the historical performance of various indices spanning many decades or even centuries in some cases.

Bond Floor: The minimum that the strategy will hold at any one time in bonds. 
CAGR: long-term annualized return, net of advisory fee.
Sharpe Ratio: Excess return per unit of total volatility. Higher is better.
Max Drawdown: largest peak-to-trough decline in the test period.
Max Risk budget** is a target guardrail that estimates the maximum drawdown based upon worst-case future scenarios; it is not a guarantee. The benchmarks use long-history proxies: equities = MSCI ACWI or S&P 500; bonds = Bloomberg Aggregate (global or US).
Standard Deviation: the typical size of ups and downs around the long-term average return.
Sortino Ratio: Excess return per unit of downside volatility (penalizes only negative returns). Higher is better.
Recovery Days: time, in market days, not calendar days, to attain a new high after the worst drawdown.

*Important disclosures: Backtested results are hypothetical, reflect model assumptions, and do not guarantee future results. They use ETF data available from the earliest common start date, 2012 (earlier tests use simplified proxies). Drawdown “risk budgets” are targets, not guarantees. All portfolios can lose value. Portfolio returns are shown net of a 1.00% annual advisory fee, accrued daily. Published benchmarks are shown without advisory fees (ETF benchmarks are net of fund expenses). Risk statistics (Max Drawdown, Annual Std Dev, Sortino, Recovery Days) are shown gross of advisory fees because they come from a 1% cash buffer, which reduces returns slightly but does not change the risk statistics. Investments involve risk, including loss of principal. Benchmarks are unmanaged and not directly investable.

As we have mentioned, historical data and analysis should not be taken as an indication or guarantee of future performance. Past performance is no guarantee of future results and future performance may differ significantly from historical performance. The backtests are displayed to give you an idea of how our investment strategy has worked in the past and how it has differed from other investment strategies during that time.

Quantitative backtests have many inherent limitations, some of which, but not all, are described below. One of the limitations of backtested performance results is that they are generally prepared with the benefit of hindsight. In addition, backtested trading does not involve financial risk, and no backtested trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses can adversely affect actual trading results. The backtested performance results contained herein represents the application of the quantitative models as currently in effect, and there can be no assurance that the models or portfolio constituents will remain the same in the future or that an application of the current models in the future will produce similar results because the relevant market and economic conditions that prevailed during the backtested performance period will not necessarily recur. There are numerous other factors related to the markets in general or to the implementation of any specific trading strategy which cannot be fully accounted for in the preparation of backtested performance results, all of which can adversely affect actual trading results.

Prudent decisions are often made using history as a guide, but no one knows the future, and therefore the results should not be viewed as an expectation of what will happen in the future, but merely as a tool to better understand how the various strategies and benchmarks differ.