The Defensive Portfolio aims to preserve capital with a secondary objective of income and inflation protection. It may be suitable for people in their 70s, who are in later stage of retirement. The static portfolio targets 20% in risk assets such as equity, commodity, real estate and energy master trust and 80% in bonds as strategic long-term allocations. The dynamic portfolio has 20% in risk asset on average, though the allocations on risk assets vary across different stages of economic and market cycles. Historically, this strategy delivered 11% annual return with a 9% drawdown. The following are the backtesting results based on monthly data since 1970.
Long Term Performance Compared to Benchmark (20% S&P 500 +80% Barclays Aggregate Bond Index)
Portfolio Composition in 12/2011
| Equities | Static | Dynamic | ||
|---|---|---|---|---|
| SPY | US Large Cap | 15% | 7% | |
| IWM | US Small Cap | 15% | 2% | |
| EFA | Developed Market Equity | 15% | ||
| VWO | Emerging Market Equity | 15% | ||
| Dividend Assets | ||||
| IYR | US REIT | 5% | ||
| AMJ | US Energy Master Trust | 5% | 7% | |
| Commodities | ||||
| GLD | Gold | 5% | ||
| GSG | Commodity | 5% | ||
| Bonds | ||||
| HYG | US High Yield | 5% | 22% | |
| AGG | US Bond | 5% | 31% | |
| TIP | US Treasury Inflation Indexed Bond | 5% | 16% | |
| IEF | US Treasury Bond | 5% | ||
| TLT | US Long Term Treasury Bond | 16% | ||
| SHY | US Short Term Bond |
Two-year Monthly Performance
Forty-year Annual Performance
Portfolio Performance Statistics
| Static | Dynamic | Benchmark | |
| Average Monthly Return | 0.7% | 0.9% | 0.7% |
| Monthly Standard Deviation | 1.6% | 1.6% | 1.6% |
| Annualized Return | 8.9% | 10.8% | 8.0% |
| Annualized Standard Deviation | 5.7% | 5.6% | 5.5% |
| Sharpe Ratio (Risk-free Rate = 5.5%) | 0.6 | 0.9 | 0.5 |
| Maximum Drawdown (Loss) | 15% | 9% | 7% |
| Expected Time to Recover (yrs) | 1.7 | 0.8 | 0.9 |
