The 100% Equities Portfolio

The third benchmark portfolio, tracked mainly to contrast it with other aggressive portfolios: the Levered Butterfly and the RPC Growth portfolio. It represents the highest volatility that the average investor is comfortable with and is usually only the strategy of those far from retirement.

Breakdown of the 100% Equities portfolio

There are multiple ways one could construct a 100% equity mix, so I opted to just make this resemble the simplicity of the 60/40 using the same assets in the 80/20. I did consider adding small cap value stocks (in the form of VIOV) to the portfolio, but deferred to a simpler approach. Note: adding a portion of small cap value does improve the results in the backtest, though slightly. I opted to follow the precedent of the 60/40 and 80/20 portfolios, however.

Compared to the other test portfolios, this one ranked last in five categories, second to last in another, third to last in another, and scored only decently in two: tied for fourth for loss frequency, and fourth in expected return. In a sense, that it finished so low in terms of avoiding volatility and drawdowns is not surprising - that’s what you sign up for when you take on an all-stock portfolio. But, the absence of truly high returns overall and the lowest safe and perpetual withdrawal rates are more serious demerits for this portfolio. For taking on all that volatility, you would still underperform the RPC Income or Levered Butterfly portfolios by more than two percent. The end result is terrible risk-adjusted returns, as demonstrated by the worst Sharpe ratio of the ten: .47.

This portfolio should also give you a sense of what leverage can do. Leverage is seen as risky, but in this case, you have a non-leveraged portfolio which is riskier (as measured by standard deviation, drawdown statistics, and the Ulcer Index) than five variations of Risk Parity portfolios that use leverage. To compare it to the Levered Butterfly, which has 80% additional leverage, the 100% Equities portfolio is worse in every single category, sometimes by quite a lot. If the backtest projections are indeed accurate, you can see here that a moderately leveraged, fully diversified portfolio like the Levered Butterfly is superior in terms of risk AND reward to a non-leverage, non-diversified one like this 100% Equities example.

Here is the Correlation Matrix (Data begins in 2009; credit to Portfolio Visualizer):

Correlation Matrix for 100% Equities portfolio

And, the Backtest Analysis (Data from 1970; credit to Portfolio Charts):

Backtest for 100% Equities portfolio