Select a Portfolio

TuringTrader tracks more than two dozen portfolios to cover all typical investment objectives. Unfortunately, this variety can quickly become overwhelming and lead to the paradox of choice. This article describes the aspects to consider when choosing a portfolio.

Know Your Investments

No matter how well a portfolio is designed and how low its volatility is, there will be times where the returns fall short of our expectations. It is important to stay rational, act with a steady hand, and stay the course in these challenging times.

There is one key element investors need to see things through: conviction. In our opinion, investors can only achieve the required level of confidence by knowing what they invest in. In particular, investors should know:

  • the charts and metrics shown
  • the methods of modeling and analysis used
  • the mechanics of the portfolio
  • the range of historical outcomes

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Therefore, we highly encourage our members to use the materials provided on this site to learn about investing in general and their portfolios in particular. Curious investors will find a lot of helpful information on

  • portfolio comparison, putting portfolio returns and risk into context
  • portfolio pages combining charts, metrics, and rules with a discussion from an investor's point of view
  • explainer articles for our methods, charts, and metrics
  • background articles, explaining specific portfolio implementation details

Based on this information, we suggest that you invest in a portfolio that you genuinely believe in. Doing so will shield you from the fear of missing out, the temptation to second-guess the allocations, and from changing direction at the most unfortunate time.

Focus on Risk, Not Returns

Many investors focus on returns when choosing a portfolio. This approach is understandable, as the primary purpose of investing is appreciation. However, returns are meaningless unless considered in the context of risk. Consequently, the first question investors should ask themselves is how much risk they are willing to take on with their investments.

There are many different ways to look at risk, but most of them remain abstract. To make the effect of investment risk more tangible, we will walk through some simple thought experiments. All of these experiments start with an IRA account holding $500,000. Every year, we withdraw $30,000 to prop up our social security. Next, we use Monte-Carlo simulation to evaluate 10,000 possible outcomes. Finally, we chart the 5th percentile for the worst case and the 95th percentile for the best. To keep our experiments simple, we ignore inflation. While this is an oversimplification, it is sufficient to illustrate our point.

IRA held in cash

The chart above shows an IRA with cash holdings. As we withdraw funds from the account, the value declines until it runs dry after 16.5 years. Most likely, this is not enough for retirement, leaving two options: either we can spend less or invest the money to create some returns on the way. We do so by investing our retirement savings.

IRA held in U.S. bonds

This chart shows an IRA fully invested in the aggregate U.S. bond market. Because bonds, just like any investment, come with volatility, we now see an upper and a lower bound for our portfolio value. However, because bonds have relatively low volatility, these upper and lower bounds remain close together. Nonetheless, we can see a substantial difference between best-case and worst-case outcomes. Worst case, we have to assume that our savings last no longer than 21 years.

We calculated this worst-case at the 5th percentile. In other words, with a confidence of 95%, our actual results will turn out better. The same threshold is often used to calculate Value at Risk, and in our opinion, it makes little sense to go more conservative. Instead, responsible investors should be willing to adjust their spendings when they experience a severe shortfall of returns.

IRA held in 60/40

Twenty-one years is most likely still not enough to retire comfortably, so we consider a middle-of-the-road portfolio: the ubiquitous 60/40. As a result, we see significantly higher returns, and on average, our account will continue to grow through retirement. However, we cannot be too sure about this. Because the portfolio has significantly higher volatility than holding just bonds, our worst-case scenario shows only minimal improvement: our savings might now be depleted after 23 years.

IRA held in U.S. stocks

A typical reaction to this reality is to invest more aggressively. So what happens if we invest in the S&P 500 instead? Again, we have significantly stepped up our portfolio's return. But at the same time, the gap between average and lower bound results has widened even more. As a result, we might now run out of money after just 16 years, which is a much worse outcome than relying on an all- bonds portfolio. And with a 5% probability, this scenario is not too far-fetched.

IRA held in All-Stars Total Return

The main takeaway here is that volatility is not your friend. This is especially true when you must rely on reaching specific financial goals. Therefore, instead of focusing on high returns, investors should focus on risk-adjusted returns. This is precisely what we do at The chart above shows how our All-Stars Total Return portfolio not only improves your returns but, more importantly, improves the likelihood of reaching your financial goals.

Higher Volatility Requires More Patience

But even while accumulating wealth, it is crucial to watch your portfolio volatility because it directly dictates your investment horizon. In a nutshell, the higher your portfolio's volatility, the longer your investment horizon should be. If your portfolio is too risky for your investment horizon, you might end up worse than not investing at all. To illustrate this thought, we run a few more experiments.

Investment horizon of bonds

As we have seen above, an investment in bonds has low volatility. As a result, our worst-case investment return recovers quickly. With 95% confidence, we can assume that we have will reach break-even after three years or less. Obviously, the average outcome is going to be much better.

Investment horizon of 60/40

This minimal investment horizon quickly increases with volatility, and with a 60/40 portfolio, we are already looking at six years. Therefore, we must stay invested for longer than this period if we want to be sure to come out without blemishes. Speaking of blemishes, we notice how the worst-case scenario has its low-point after about 1.5 years at 11% below the starting value. It is essential to realize that deeper drawdowns are quite possible. However, the probability of these happening at such an early time is less than our threshold of 5%.

Investment horizon of S&P 500

For an all-stocks portfolio, we need to extend our investment horizon to a whopping eleven years. That's a long time that calls for some serious planning ahead. But because life often takes unexpected turns, we might need to withdraw some of our funds earlier than that. To avoid realizing losses while doing so, most investors keep a rainy day fund, which they invest in low-volatility assets. This is a good idea but also a drag on your returns.

Investment horizon of TuringTrader's All-Stars Total Return

The takeaway here is that investors should aim to reduce their portfolio volatility whenever they are nearing critical financial goals. That way, they can tighten the range of possible outcomes, which allows for better planning and higher certainty. Again, this is where's approach of maximizing risk-adjusted returns pays off. With our All-Stars Total Return portfolio, the minimum investment horizon is less than 1.5 years. This means that you can invest your money for shorter periods, be more prepared to deal with surprise-expenses, and get by with a much smaller rainy day fund.

Don't Risk More Than You Can Stomach

In our experience, many investors overestimate their appetite for risk until faced with drawdowns. The natural response in this situation is to change direction and move toward less risky investments. Unfortunately, this is a terrible idea.

Switching Portfolios after Drawdown

The chart above illustrates this. We can see how an investment in the S&P 500 results in a wide cone of possible outcomes. We can see how a simple 60/40 portfolio investment results in a much narrower cone with a more moderate slope. Our hypothetical investor invested in the S&P 500. After five years, he experiences deep drawdowns. The emotional stress of losing money gets too much, and he de-risks his investments to a more docile 60/40 portfolio. But in doing so, he has now locked in the losses from the aggressive portfolio. Any recovery will happen at the slower pace of the 60/40. As a result, his investment results will trail those from investors starting less aggressively.

As a takeaway, we recommend starting slow. Don't consider aggressive or even leveraged portfolios if you can't stomach the volatility. Instead, pick your portfolio based on risk, not returns. And resist the temptation to reduce risk after deep drawdowns.

To help with choosing a portfolio, TuringTrader shows vital metrics for each portfolio tracked on the site. The maximum drawdown and maximum flat days make the risk very tangible. Think about your reaction to losing the maximum drawdown and taking the maximum flat days to recover from these losses. But backtests provide only a single data point for measuring risk and returns. Because history does not repeat itself verbatim, the likely range of possible outcomes provides better guidance. Our Monte-Carlo simulations are a helpful tool to determine the likelihood of returns and drawdowns. We encourage investors to learn about our charts and metrics, especially our risk metrics. We have written an explainer article covering the charts and metrics we use throughout the site.

Consider Your Tax Situation

All portfolios on aim to beat the market in terms of risk-adjusted returns. To do so, they rely on tactical asset allocation. In other words, they rotate the assets to make the best out of the current market environment.

Unfortunately, trading stocks and other securities has tax implications. While profits remain untaxed while they are unrealized, they become subject to taxation when they are realized. Investors need to keep this in mind when considering trading in taxable accounts. There are two possible ways to address this issue:

  • consider tax efficiency when choosing a portfolio. has some great choices for tax-efficient portfolios
  • choose an aggressive portfolio. offers some portfolios with returns high enough to add significant after-tax value

Which route to go not only depends on your personal preference but also on the available investment horizon.

Think about Your Lifestyle

Investing with TuringTrader requires discipline. To achieve the results shown on the site, you need to follow the rebalancing schedule as closely as possible. While it might be ok for a portfolio rebalanced monthly to delay rebalancing by a couple of days, portfolios on weekly or daily schedules are typically much less forgiving.

Therefore, it is crucial to choose a portfolio that fits your lifestyle. TuringTrader offers portfolios for every lifestyle. The effort required for portfolio maintenance ranges from 5 minutes a month up to 15 minutes a day. All of our portfolios are rebalanced while the markets are closed, so there is no rush - but you still need to make the time.

Diversify with All-Stars Portfolios

Each portfolio on aims to improve risk-adjusted returns through diversification and rotating assets. However, we don't know what the future brings and how well the portfolios will deal with unforeseen circumstances. In addition to diversification across asset classes, it is also possible to diversify across investment styles by investing in multiple portfolios simultaneously.

This is where our family of All-Stars Portfolios comes in. Each of them combines several of our Premium portfolios into a meta-portfolio with better returns at lower risk. And because each of the component portfolios relies on a different mechanism, our All-Stars Portfolios can successfully cover a broader range of market situations. We have written an article about our All-Stars Portfolios explaining this in more detail.

We firmly believe in our All-Stars Portfolios' advantages, which is why puts particular focus on these. However, more sophisticated investors can also mix and match our component portfolios and create their own custom variants. To learn how, check our instructions here.