Hello Stock-pickers :)
I finally had the time to do something I wanted to do for a while: backtest and compare the most common long-term investment strategies with real market data.
The title is a bit of a joke, a bit true :) In fact I tested:
- 100% stock approach: just buy the market (Bogle's mantra) * 80% stock + 20% bond as insurance (often associated with Warren Buffett’s advice for general investors) * Ray Dalio's all-weather portfolio: stocks, bonds, commodities, gold (static) * Ray Dalio's all-weather portfolio: stocks, bonds, commodities, gold (actively rebalanced on trend switch using EMA-50)
I think the results are kinda interesting:
- the 100% stock still wins in absolute terms of returns, but exposes the investors to 55% drawdowns and very long recovery periods * the actively rebalanced all-weather porfolio (stocks/bonds/gold) looks more attractive if we consider the risk-adjusted returns, but most importantly offers more manageable drawdowns and faster recovery times
Here is a summarized table of the results:
|Strategy|Allocation|CAGR|$10K became|Volatility|Sharpe|Max DD|Recovery| |:-|:-|:-|:-|:-|:-|:-|:-| |100% SPY|SPY only|+11.2%|$83,600|19.3%|0.58|-55.2%|1,256d| |80/20 + TLT|80% SPY / 20% TLT|+10.1%|$68,500|14.2%|0.71|-42.5%|694d| |Diversified|50% SPY / 25% TLT / 15% DBC / 10% GLD|+8.6%|$52,100|10.5%|0.82|-32.0%|575d| |Equal Weight|25% SPY / 25% TLT / 25% DBC / 25% GLD|+7.7%|$44,100|10.1%|0.76|-27.4%|685d| |EMA-50 filter|Trend-switched|+9.9%|$66,100|10.7%|0.93|-31.2%|680d|
*please note I used ETFs for gold, bonds and commodities, for simplicity *dividend, taxes and fees are not accounted for
And here a detailed blog post if you wanna dig deeper into the methodology, the findings and the considerations about the rebalancing management.
Thoughts? 😄