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First, I have never sold investment advice or made a dime from it. Over the years, I’ve helped hundreds of investors, from beginners building simple portfolios to experienced investors exploring alternative (ALT) strategies.
Investing in two or three index funds is still good advice for many people. But buy and hold is also a decision, and it comes with risk. The S&P 500 struggled during 2000–2010, and I believe investors could have navigated that decade better. I did.
I started investing in 1995 with two Vanguard index funds, inspired by A Random Walk Down Wall Street. When markets began falling in 2000, I started exploring alternatives.
My philosophy became simple: Why not invest in the categories performing well over the past three to six months and select funds with attractive risk-adjusted returns?
I initially used five funds, comparing total return (TR), standard deviation (SD), and the Sharpe ratio. When U.S. large-cap growth performed well, I leaned toward it. When leadership changed, I diversified into value, small caps, and international stocks.
Markets evolve, and no strategy works forever. My goal is to adapt rather than remain stuck in an underperforming category for years.
I use Fidelity’s free fund screener, looking at Sharpe ratios first, followed by standard deviation and total return. After years of practice, I can identify potential candidates in minutes.
Supposed I’m young and looking for a typical stock portfolio without bonds. Using the following (link) from Fidelity I found the BDMAX/BDMIX, QNZIX/QNZNX, TIBIX/TIBAX, BPLSX/BPLEX, and AQGNX. These are screening examples, not automatic buy recommendations.
Using testfol.io, my 3 years backtest showed the 5 funds beat the SP500 for TR, SD, and Sharpe. The SP500 had close to 50% more volatility, and close to twice the drawdown. If you had done the screening 6 months ago, most of the funds were there too.
For a more conservative portfolio, let’s look for SD < 6. This is where I live. BDMAX, EGRIX, and APDPX. My analysis of their recent three-year performance showed an annualized return of 15.16%, standard deviation of 3%, maximum drawdown of 2.2%, and Sharpe ratio of 3.3. These figures should be independently verified.
This approach doesn’t require weekly or monthly trading. You can review your portfolio just 2–3 times a year, spending only a few hours annually.
You don’t have to apply it to your entire portfolio. You could start with 30% and reassess based on your experience and risk tolerance.
The goal isn’t to predict every market move. It’s to adapt to changing conditions, pursue attractive risk-adjusted returns, and protect capital. Buy and hold remains a valid strategy, but it isn’t the only one—especially when protecting your retirement savings matters.
I’m probably missing something, but isn’t your backtest circular? You screen for the funds with the best Sharpe ratios over the last three years, then backtest those same funds over the same three years and find they beat the S&P 500. Of course they did, isn’t that why they were selected?
You beat the S&P 500 in 2000-2010, but that’s a low bar. Small-cap value, bonds, and international stocks held up much better, so a plain index mix with some of each would have also beaten the S&P. A fairer test might be against a simple index mix with the same ups and downs as your funds. Your Testfol.io might make that possible: try a global stock fund plus a bond fund, adjust the percentages until the volatility matches yours, and compare. It would be an interesting comparison.
The strategy seems logical, and you are watching the market and adapting when needed.
You started in 1995 with this approach. Have you compared the returns with your approach over the entire length with a S&P 500 fund such as VFIAX or a total market fund such VTSAX? May be a shorter duration than three decades, but still a long one, or even a test simulation with the moves you made.
I am trying to get a sense of how a totally passive approach compares with yours and if it is worth the trouble.
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