Back testing hypothetical portfolios is a clever marketing tool that mutual funds and money managers often employ to show what would have been, in order to attract assets under management (AUM). Of course the greater the AUM, the greater the fees and profits for the manager.
Offering back tested performance is a tricky pursuit for a variety of reasons. Mutual funds and money managers have all kinds of ways to legally misrepresent actual performance (read about survivorship bias).
At MarketRiders we seek to be honest and unbiased and don't want to "play the game." Nevertheless, we felt compelled to respond to numerous client requests.
So understand, these are hypothetical results. ETFs are a newer type of index fund, and many that we recommend in MarketRiders portfolios were not around 5 years ago. Therefore, for the purpose of this exercise, we have built and back tested 4 MarketRiders' style portfolios using all iShare ETFs. These ETFs have been around long enough to go back 5 years and provide useful information to an investor who wants to see the power of the MarketRiders System. In actual MarketRiders portfolios, we recommend only 1 or 2 of the ETFs below, substituting the remaining iShares products with what we believe to be superior ETFs offered primarily by State Street Bank and Vanguard.
These portfolios were all rebalanced when an asset class deviated greater than 20% from its target. Trading fees for each rebalancing were deducted from returns. With these caveats, you can see the power of an all ETF portfolio, with low fees, periodically rebalanced, and built according to 4 different asset allocations ranging from a 20% to an 80% bond allocation. All of these portfolios include 6 asset classes: US Stocks, Foreign Developed Stocks, Emerging Market Stocks, Bonds, Treasury Protected Bonds (TIPs), and Real Estate (REITs).
|US Inflation Protected Bonds||TIP||13.0%||10.0%||7.0%||5.0%|
|Government & Corporate Bonds||AGG||67.0%||50.0%||33.0%||15.0%|
|Emerging Market Stocks||EEM||2.0%||4.5%||6.5%||8.5%|
|Foreign Developed Stocks||EFA||5.0%||9.0%||13.5%||17.0%|
|US Large Cap Stocks (S&P 500)||IVV||6.0%||15.0%||20.0%||27.0%|
|US Small Cap Stocks (S&P 600)||IJR||3.0%||5.5%||10.0%||14.5%|
Annualized Portfolio Returns*
|6 Year Return (1/1/08 - 12/31/13)||5.8%||6.1%||6.2%||6.1%||7.2%|
|3 Year Return (1/1/11 - 12/31/13)||4.8%||6.6%||8.3%||10.1%||9.4%|
|1 Year Return (1/1/13 - 12/31/13)||1.5%||6.7%||11.6%||17.0%||32.3%|
|YTD 2014 (1/1/14 - 6/30/14)||4.95%||5.78%||7.10%||7.60%||19.74%|
|5 Year Return (1/1/08 - 12/31/12)||32.33%||34.27%||35.00%||34.41%||41.39%|
|3 Year Return (1/1/11 - 12/31/13)||15.15%||21.11%||26.97%||33.38%||56.39%|
|1 Year Return (1/1/13 - 12/31/13)||1.53%||6.65%||11.57%||16.96%||32.30%|
* Calculated with dividends reinvested
** Back tested performance data does not guarantee future results
*** Portfolios were rebalanced every 180 days
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