Dynamic US Market Strategy

This strategy invests in the S&P® 500 index comprised of 500 leading publicly traded companies in the U.S., representing around 80% of the overall U.S. stock market.  An S&P 500 index fund or like-fund is available in most investor accounts.  The strategy, despite outperforming buy-and-hold investment portfolios, has had only a small number of trades per year, making it easy to follow.

The strategy will switch to the safety of government bonds or cash when performance of U.S or foreign markets turns down.

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

How does the strategy work?

The Dynamic US Market strategy is designed to hold stocks (SPY) when recent market performance is positive.  However, when stock market strength weakens and prices begin to fall, this strategy will sell SPY and switch to a safer investment.  Depending on market conditions, the safer investment will be either U.S. treasury bonds or cash.  There are many different treasury bond indexes.  The 7-10 year U.S. Treasury bond index was chosen (IEF) because of the intermediate term of the bonds it represents.

Asset classStrategy holdingDescription
StocksSPYS&P 500 large-cap U.S. Stocks
Government BondsIEF7-10 Year U.S. Treasury Bonds
Cash and cash equivalentsCashCash held as United States dollars.

Strategy Metrics

MetricStrategyBalanced portfolio
Annual Return (20 years)9.5%6.7%
Sharpe Ratio (20 years)0.810.68
Max Drawdown-13.0%-32.6%
Drawdown Start / End datesDecember 2021 to September 2023October 2007 to December 2010
Max Drawdown length21 months38 months

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