# Static Asset Allocation Backtesting ### **Mastering Long-Term Investing with Minimal Trading** **Static asset allocation backtesting** is a quantitative technique used to evaluate the historical performance of a fixed asset allocation strategy over time. The primary goal of static asset allocation is to create a mix of assets that provides an optimal balance of expected risk and return over a long-term investment horizon. Typically, static asset allocation strategies are structured to withstand varying economic environments. This strategic mix of stocks, bonds, alternatives and cash helps many investors create a portfolio that fits their risk tolerance and long-term investment goals. ### **Harnessing the Potential of ETFs** ETFs emerge as a beacon of opportunity, offering investors unparalleled access to a diverse array of assets. With ETFs, individuals can construct investment portfolios mirroring those of large institutional investors, unlocking a world of potential and possibility. ### **Diversification: The Key to Risk Reduction** At the heart of static asset allocation lies the principle of diversification—a cornerstone of sound investment strategy. By spreading risk across a range of assets, investors safeguard their portfolios against market fluctuations, ensuring stability and resilience in the face of uncertainty. ### **Embracing the Buy-and-Hold Approach** Static asset allocation embodies the essence of the buy-and-hold philosophy, advocating for a steadfast commitment to long-term investment goals. While rebalancing may occur periodically, the overarching strategy remains rooted in patience and conviction, allowing investors to ride out market cycles with confidence. ### **How to backtest at ETF Portfolio** Investors can easily start backtesting with the instructions below. Find more about backtesting on etf-portfolio.com. {% tabs %} {% tab title="Setting" %} ### Setting the timeframe The start date of the backtest is limited to the shortest period of data available for the selected ETF. If you don't specify an end date, it will automatically be based on the previous day. ### Rebalancing Frequency Asset allocations are rebalanced at each time point based on price changes. Periodically, the asset allocation is rebalanced back to the original target allocation. ### Trading Costs You can choose the actual trading costs for your account. If you do not include trading costs, the results of the backtest may differ from the actual results.
{% endtab %} {% tab title="Asset selection" %} Press the (+) button to view the ETFs represented in each asset class.
Use the Find ETFs by Asset Class button to see a list of other ETFs.
When you select an ETF, you will automatically be taken to the 'Selected investments' list. (Double-click to remove it from the list). * From over 3000 ETFs listed in the US, we have selected over 300 ETFs that have proven over time to have large fund sizes, above average trading volumes and low tracking errors. We recommend these ETFs based on their benchmark indices, ETF descriptions and annual fees. * Members can save their favourite ETFs. After logging in, go to the \[ETF] - \[ETF Comparison] screen and tick the star for your favourite ETF. This will create a separate collection of your favourite ETFs on the investment selection screen. {% endtab %} {% tab title="Allocation weights" %} Choose how the investment weighting of the asset is determined. * **Fixed weight:** Enter a weight for each of the selected investments. * **Equal weight:** Give the selected assets the same weight. * **Inverse volatility:** Determine the weight based on the inverse of the historical risk (volatility) of the selected assets. * **Minimum variance:** Given the historical risk (volatility) of the selected assets, apply asset weights that can minimise the risk (volatility) of the overall portfolio.
{% endtab %} {% tab title="Crash protection" %} Not often, but from time to time, for as short as a year or as long as several years, there are anomalies in the economic environment that deviate significantly from the norm. In these cases, it may be better to take a break from investing and hold cash to avoid extreme crises. This option is not normally included in most static asset allocation strategies, but we are constantly looking for ways to reduce risk further and try to provide good options. **Option 1: Inverted Yield Curve (10-year minus 2-year) -** Move into Defensive Assets if the 10-year minus 2-year yield turned negative from A to B months ago **Option 2: Inverted Yield Curve (10-year minus 3-month) -** Move into Defensive Assets if the 10-year minus 3-month yield turned negative from A to B months ago **Option 3: S\&P500 Dividend Yield -** When the dividend yield on the S\&P500 falls below certain levels, move into Defensive Assets. **Option 4: Unemployment rate (general) -** hedges against recession by assuming that the unemployment rate has risen above a certain threshold. **Option 5: Unemployment Rate & Spy (GTT-UE) -** This option is used in the GTT-UE strategy and is triggered when the unemployment rate is above the previous 12-month average and the SPY is below its 10-month moving average. **Option 6: Sahm's Rule -** When the 3-month moving average of the U.S. unemployment rate is at least 0.5% points above the previous 12-month minimum and has increased from the previous month, move into defensive assets. **Option 7: Sahm's Rule and SPY Momentum -** Move to defensive assets when the 3-month moving average of the U.S. unemployment rate is 0.5% points above the prior 12-month minimum & the SPY is below its 10-month moving average {% endtab %} {% tab title="Strategy Examples" %} **Strategy Examples** You may not know what to invest in at the outset. We offer strategy examples that allows you to follow the investment strategies of famous hedge funds and investment institutions, as well as those of renowned academics. Simply select a strategy you like at the top of the screen and we'll automatically select the content of the strategy for you. (This is a unique feature that you won't find anywhere else.) You can then build on this strategy to add or modify your own assets and methodologies. If you find it difficult to create your own strategy at first, we recommend that you start with the strategies of existing masters. We hope you find them useful.
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