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Halls of Shrewd'm / US Policy❤
No. of Recommendations: 1
What good low draw down ETF portfolio allocation plan static or dynamic plan that Jim or someone has come up with, max draw down 10%, or less?
Thanks in advance.
No. of Recommendations: 7
Not free but Allocate Smartly specializes in comparing over 75 different published ETF strategies historically back tested with their editorial take on the probability of future returns. Additionally, they have tools that allow you to combine multiple strategies that have the potential to work in different environments. Their site is a good source of potential strategies even if you decide not to use their service.
I have been using a 60%/40% mixtures of two of their strategies each based on completely different principals for part of my investments.
60 % in Bold Asset Allocation- Aggressive
40% in Risk Premium Value = Best Value
1980 to present by their back test 16.6% CAGR 10.3% MDD (10/2008), Sharp 1.24,
Ulcer Performance Index 5.04
And yes, I am fully aware that future returns have virtually no probability of being that good. But both
methods look promising and historically they are uncorrelated.
It’s worth it to me to just getting an email telling me to reallocate.
No. of Recommendations: 8
What good low draw down ETF portfolio allocation plan static or dynamic plan that Jim or someone has come up with, max draw down 10%, or less?
Take the best ETF you can find with an expected 50% max draw down. Put 20% of your money in that ETF, and the rest in cash.
Elan
No. of Recommendations: 9
Here's a portfolio I developed that might fit the bill. It's not too bad as an equal-weight, but better optimized. The backtest is from Portfolio Visualizer with 5/25 rebalance bands and Vanguard Wellington as a benchmark.
Portfolio Analysis Results (08/01/2010 - 11/11/2024)Note: The time period was constrained by the available data for iMGP DBi Managed Futures Strategy ETF (DBMF) [Aug 2010 - Oct 2024], and this time period was extended based on the configured backfill.
Pretty Good Risk Parity PortfolioTicker Name Allocation
QQQM Invesco NASDAQ 100 ETF 10.00%
XLK The Technology Select Sector SPDR ETF 12.00%
XLV The Health Care Select Sector SPDR ETF 10.00%
XLP The Consumer Staples Sel SectSPDR ETF 10.00%
GLDM SPDR Gold MiniShares 10.00%
VGLT Vanguard Long-Term Treasury ETF 7.00%
DBMF iMGP DBi Managed Futures Strategy ETF 13.00%
VGSH Vanguard Short-Term Treasury ETF 8.00%
BIL SPDR Blmbg 1-3 Mth T-Bill ETF 6.00%
UUP Invesco DB US Dollar Bullish 14.00%
PGRPP Equal WeightTicker Name Allocation
QQQM Invesco NASDAQ 100 ETF 10.00%
XLK The Technology Select Sector SPDR ETF 10.00%
XLV The Health Care Select Sector SPDR ETF 10.00%
XLP The Consumer Staples Sel SectSPDR ETF 10.00%
GLDM SPDR Gold MiniShares 10.00%
VGLT Vanguard Long-Term Treasury ETF 10.00%
DBMF iMGP DBi Managed Futures Strategy ETF 10.00%
VGSH Vanguard Short-Term Treasury ETF 10.00%
BIL SPDR Blmbg 1-3 Mth T-Bill ETF 10.00%
UUP Invesco DB US Dollar Bullish 10.00%
Performance SummaryPortfolio performance statistics
Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown Sharpe Ratio Sortino Ratio Market Correlation
Pretty Good Risk Parity Portfolio $10,000 $35,885 9.32% 6.24% 20.35% -5.46% -7.45% 1.27 2.32 0.81
PGRPP Equal Weight $10,000 $33,412 8.78% 6.03% 18.38% -7.02% -8.97% 1.23 2.22 0.80
Vanguard Wellington Inv $10,000 $37,841 9.73% 9.60% 22.51% -14.32% -20.22% 0.89 1.40 0.96
JRB
No. of Recommendations: 3
ake the best ETF you can find with an expected 50% max draw down. Put 20% of your money in that ETF, and the rest in cash.
Elan
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I have been doing something similar. 85% in 3 month Treas Bills, 15% in high momentum stocks.
I want to simplify it more.
How would you or others choose the ETF for the 15%?
No. of Recommendations: 2
85% in 3 month Treas Bills, 15% in high momentum stocks.
I want to simplify it more.
How would you or others choose the ETF for the 15%?
That seems pretty simple to me. Not sure it could be simplified further.
I think Elan's "best ETF you can find with an expected 50% max draw down. Put 20% of your money in that ETF, and the rest in cash." is the best you could do.
Of course, there is no way to predict what the max drawdown will be. There was never a drawdown greater than -30%....until there was.
The problem is that you cannot get stock-like returns without stock-like volatility. If you don't want the volatility you have to put the money into some sort of cash, like T-bills. And you will get the low volatility and low returns of cash. Which tend to barely offset inflation.
There is no clever way of arranging 10 pounds of potatoes to fit into a 5 pound sack.
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There are papers that say that, overall, there is not much difference between an 80/20 portfolio and a 20/80 portfolio. Anywhere in that range is about as good as anywhere else in that range.
No. of Recommendations: 11
Take the best ETF you can find with an expected 50% max draw down. Put 20% of your money in that ETF, and the rest in cash.Outstanding summary.
Also not such a bad idea right now, as (for the moment) cash and T-bill returns are positive after inflation.
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There might (?) be some non-ETF strategies that offer a meaningful positive return on average with a very low chance of a large drawdown.
Some are not intuitive, and perhaps a fair bit of work, but this is potentially an interesting read
http://www.datahelper.com/mi/search.phtml?nofool=y...If done correctly this offers (to overgeneralize) a decent positive return most years, roughly flat in a few years, and a few years that you know in advance that it's not worth bothering so you have to do something else. This is how I kept myself fed for a number of years, though I stopped using the hedging strategy described. My fund management company was managing some cash for a public company and I used this strategy (almost precisely) for them right through the credit crunch. They made (very low) double digit returns each year, after costs and my fees.
Jim
No. of Recommendations: 6
I just thought about one way to reduce the MaxDD. It's not zero effort though, and it doesn't get down to -10% DD. But it does cut the MaxDD from -46% to -23%. 1962 was a very bad time. As was Black Monday (1987). Not much way to predicably avoid things like those.
That is the the S&P500 using the 43 week (10 months or 200 days) SMA. Sell at 4% below the SMA.
Increases the Sortino Ratio from 0.92 to 1.30.
Backtest is monthly S&P500 including dividends, 1950-2017.
Some of that and some of 10 year T-bills could improve the MaxDD (while also reducing the return.)
80/20: -18% (B&H is -39%) (CAGR is 10.7%)
60/40: -13%
50/50: -11%
40/60: -9% (B&H is -20%) (CAGR is 8.3%)
You are giving up a lot of return to get that lower MaxDD. Over the long term, that is a bad deal. But if your period of concern is smaller, like maybe 10 to 20 years, that might be okay.
No. of Recommendations: 2
There might (?) be some non-ETF strategies that offer a meaningful positive return on average with a very low chance of a large drawdown.
Some are not intuitive, and perhaps a fair bit of work, but this is potentially an interesting read
http://www.datahelper.com/mi/search.phtml?nofool=y...
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Jim, I tried this strategy before and had trouble picking and keeping track of many 20 puts sold, therefore was looking for an ETF strategy similar.
No. of Recommendations: 3
the KISS strategy. Select(MI) the best for the time period.
Top 10 iShares ALLOCATION ETF's
Net expense ratio 0.15%
AOA AGGRESSIVE Holdings
IVV iShares Core S&P 500 ETF 45.01%
IDEV iShares Core MSCI Intl Dev Mkts ETF 22.07%
IUSB iShares Core Total USD Bond Market ETF 17.15%
IEMG iShares Core MSCI Emerging Markets ETF 8.69%
IAGG iShares Core International Aggt Bd ETF 3.03%
IJH iShares Core S&P Mid-Cap ETF 2.71%
IJR iShares Core S&P Small-Cap ETF 1.26%
BlackRock Cash Funds Treasury SL Agency 0.10%
E-mini S&P 500 Dec14 0.00%
AOR GROWTH Holdings
IUSB iShares Core Total USD Bond Market ETF 34.23%
IVV iShares Core S&P 500 ETF 33.68%
IDEV iShares Core MSCI Intl Dev Mkts ETF 16.51%
IEMG iShares Core MSCI Emerging Markets ETF 6.50%
IAGG iShares Core International Aggt Bd ETF 6.05%
IJH iShares Core S&P Mid-Cap ETF 2.03%
IJR iShares Core S&P Small-Cap ETF 0.95%
BlackRock Cash Funds Treasury SL Agency 0.09%
AOM MODERATE Holdings
IUSB iShares Core Total USD Bond Market ETF 51.21%
IVV iShares Core S&P 500 ETF 22.40%
IDEV iShares Core MSCI Intl Dev Mkts ETF 10.98%
IAGG iShares Core International Aggt Bd ETF 9.05%
IEMG iShares Core MSCI Emerging Markets ETF 4.33%
IJH iShares Core S&P Mid-Cap ETF 1.35%
IJR iShares Core S&P Small-Cap ETF 0.63%
BlackRock Cash Funds Treasury SL Agency 0.09%
AOR CONSERVATIVE Holdings
IUSB iShares Core Total USD Bond Market ETF 59.67%
IVV iShares Core S&P 500 ETF 16.78%
IAGG iShares Core International Aggt Bd ETF 10.54%
IDEV iShares Core MSCI Intl Dev Mkts ETF 8.23%
IEMG iShares Core MSCI Emerging Markets ETF 3.24%
IJH iShares Core S&P Mid-Cap ETF 1.01%
IJR iShares Core S&P Small-Cap ETF 0.47%
BlackRock Cash Funds Treasury SL Agency 0.07%
GD_
No. of Recommendations: 1
This is how I kept myself fed for a number of years, though I stopped using the hedging strategy described.
Jim,
Did you move to a different hedging strategy, or did you perhaps just cut back on money allocated to the strategy, thereby perhaps not needing a hedge?
Just curious on why you stopped using the hedge.
Thanks (in advance) for any insights...
Lee
No. of Recommendations: 11
Just curious on why you stopped using the hedge.
The strategy as described is very safe, in that the long and hedged positions are entered at the same time. But that's very expensive, in the sense that the hedge is costing you a lot of the expected gain on the long side. I hoped to do better.
First, I went with a bit more trying not add longs when things were cheap and adding hedges when things seemed frothy, alternating the two. So at any given time I was a little over or under hedged, but the gap between one side gaining and the other side losing widens quite a bit that way. This is a good idea only to the extent that you can get a better-than-random gut feel of which is happening at the moment. Not reliable, but seemingly not impossible on average. The VIX itself is not a bad guide. If VIX is over (say) 28, finding good puts to write is like shooting fish in a barrel.
Later on I completely decoupled the hedging from the put-writing. I got much more comfortable with the put writing as a stand-alone unhedged process, and my portfolio had enough other stuff in it that it wasn't an unacceptable risk to be long through thick and thin. I've written over 100,000 put contracts. On the hedging side, I looked more carefully at which part of my portfolio actually needed hedging and how much, and ultimately decided the answers to both were "not that much".
Prices go up and down. If you can live with that, you make a lot more money in any given five year stretch. Almost everybody is trying to make a good buck every single year. I find I do a lot better by simply abandoning that goal and looking out a bit further, since so few players are.
Jim
No. of Recommendations: 1
Jim,
Thanks for sharing your insights like the one above. I certainly appreciate it, and I'm positive that other board members do as well! Your willingness to share your experience and knowledge really is remarkable.
Your experience with hedging largely mirrors my (much more limited) experience with it as well. The markets generally reward risk, and when you put things in place to hedge that risk away, it seems like the hit to returns is high. And indeed it's almost a definitional thing I guess - risk-free rates are low for a reason. I've generally found that the best hedge out there is... cash (or a truly diversified strategy). A 50% hit on a 100% sized position is huge - 50%. A 50% hit on a 50% sized position is 25% (assuming that other 50% was in something safe or uncorrelated). Painful, but nothing like the 50% hit. Allocation and diversification seems to be very key, though the diversification part seems harder and harder to find these days. I digress...
Your thoughts on shooting for better multi-year returns make a lot of sense - the simple fact that it's very difficult to do (emotionally) tells me that there's something there. I know I struggle with the fact that I'm now older, and that very uncomfortable feeling of not having as many years to recover (coupled with no working income) adds to the difficulty of staying focused on multi-year returns. I need to find some new approaches to doing that! With valuations so high right now, the idea of poor 10 year forward returns is somewhat discouraging.
Thanks again,
Lee
