36% / year--Vote on It
Anxiety-Free Lifetime Wealth
Using Treasury Bills and Big Indexes
Mostly USA ETFs Portfolio
Percent Gains--Weekly--Hypothetical
6.4 years April 12, 2002--August 29, 2008
See Comments below
TAKE YOUR CHOICE and vote on it below. It's a personal thing. I'll tell you mine in a minute.
I have visited this topic before, on more than one occasion. In this current study I was looking for a way to reduce drawdowns while maintaining above average returns.
Step 1: pick the highest ranked of the three index funds. Step 2: note whether the market trend is up or down. Buy the top-ranked fund when the market trend is up. Sell the top fund and buy U.S. Treasury Bills when the market trend is down.
During the six-year period shown, the systems have substantially beaten the market both in returns and controlled, minimized drawdowns--the central goals of this website. The table below summarizes the results.
(Recall that a drawdown is not a loss. A loss does not occur until it is realized. More on drawdowns here.)
TABLE OF RESULTS
Comparison of Profits % & Drawdowns vs Benchmarks
|
System50 |
System 80 |
SPY |
QQQQ |
|
Total Return |
69.9 |
59.8 |
15.6 |
37.6 |
|
%/year |
8.7 |
7.6 |
2.3 |
5.1 |
|
implicit %/year |
35.8 |
31.4 |
9.5 |
12.8 |
|
max drawdown |
-10.3 |
-7.4 |
-28.4 |
-40.9 |
|
duration (wks) |
40 |
40 |
24 |
24 |
|
CF |
6.8 |
8.1 |
-0.5 |
-0.9 |
(chart)
Take the 2.3% in row two. Divide it into the 9.5%, the long-term total return of the S&P 500 Common Stock Index, in row three. The quotient is 4.138. This tells you that when the market returns to 'normal', you should expect more than four times the results shown during the brief six-year period covered by this study.
System50 returns 8.7% per year (row two). Multiply that by the factor 4.138. The product is 35.8. That's the implicit %/year return long term. $10,000 grows to $900,000 over 15 years vs $40,000 buy and hold the S&P 500.
CF in row five, You may recall as the Copernicus Factor, a method of mathematically measuring 'risk'. It divides Total Return by max drawdown.
Despite the large drawdown and lower CF number, I personally would vote for System50 vs System80 because it offers a much greater gain potential over future years.
What do you vote?
System50 or
System80
Click one or the other and type a 50 or an 80 in the
Subject
window, then click Send to mail.
Depending on voter turnout and choice, I may incorporate the
winning system as a free upgrade addition to the USA
Portfolio. Your choice between risk aversion (80) and return (50).
Notes and Caveats
Boring. More than 70% of the time, these systems are invested in U.S. Treasury Bills. That's astonishing, and potentially offputting. Investors want action. Can you stand this degree of inactivity? I'm not sure I can. The shortness of time in the market causes me to wonder if I have misconceptualized the structural effects of 'implicit returns'. That bears further consideration. So, for the time being, this study should be considered experimental. If it bears out, it is a gem for the least-efforts investor--giant returns, 30 seconds per week.
Posted
9/14/2008 4:12 p.m. EDT
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