20 by 5 Strategy

The 20 by 5 Strategy is designed to gradually increase holdings in stocks as market momentum gets stronger.  It increases and deceases holdings in 20 percent increments.  The strategy evaluates stock market performance at the end of each month and determines the current strongest performing funds. It then makes investment fund recommendations to hold for the next month. Unlike traditional buy and hold (or static allocation) strategies, the 20 by 5 Strategy is able to improve returns and minimize losses by increasing allocation to assets expected to outperform, and reducing allocation to assets expected to underperform.

The chart below is the back-tested performance of the 20 by 5 Strategy since 1994 (25 years) compared to the Vanguard Balanced Fund (VBINX) which holds 60% stocks and 40% bonds.

How does the strategy work?

The 20 by 5 strategy measures the momentum of several different broad market indexes at the end of each month.  The strategy will increase portfolio exposure to stock funds in 20 percent increments as momentum gets stronger. When momentum measured over these different global indexes gets weaker, the strategy moves holdings into safer bond indexes. By gradually making these changes to the overall portfolio, the 20 by 5 strategy is able to reduce losses during bear markets, and increase gains during strong bull markets.

Asset classHoldingDescription
U.S. Large CapSPYSPDR S&P 500 ETF Trust
Developed Foreign MarketsEFAiShares MSCI EAFE Index Fund
Emerging MarketsEEMSPDR S&P 500 ETF Trust
U.S. TechnologyQQQPowerShares QQQ Trust
Government BondsIEFiShares Barclays 7-10 Year Treasury Bond Fund

Strategy Metrics

MetricStrategyBalanced portfolio
Annual Return (20 years)8.5%6.7%
Sharpe Ratio (20 years)0.830.68
Max Drawdown-16.7%-32.6%
Drawdown Start / End datesAugust 2021 to April 2024October 2007 to December 2010
Max Drawdown length32 months38 months

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Historical holdings