Disclaimer for charts: Investors cannot invest directly in an index. Past performance is no guarantee of future results. Strategies striving to mirror an index will have different returns due to tracking error, management fees and trading expenses. STIR Research is intended for a professional audience for informational purposes only and is not a recommendation to buy or sell any security, nor is it intended as specific advice for any individual investor’s portfolio. STIR is NOT a registered investment advisor or broker-dealer. STIR provides experienced independent quantitative research.

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Question? What would the outcome be if you could participate in 80% of the stock market gains while in declining markets your participation dropped to just 50%, avoiding half the losses?

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This hypothetical question is one of managed risk (80% in up markets, only 50% in falling markets) versus unmanaged risk (100% equity participation in both up markets and declining markets). The results are informative.

  • First, one might expect to have a lower overall return if they only succeeded in capturing 80% of the gains in the stock market. Data says otherwise.

  • Two, by avoiding half of the markets decline, the managed risk had more investment dollars to invest and participate in the next market advance. That advantage made up for only participating in 80% of the next market gain.

  • Risk managed succeeded over unmanaged risk. But how can an investors actually achieve that?

The LVRD Index strives to do just that by investing in a diversified portfolio of low volatility and rising dividends ETF’s and therefore participating in 80% or more of the markets gains. And adding experienced risk management (see Rule Set) to avoid part of the major losses of 40% to 50% in large bear markets (like the ones in 2000-2002 or 2007-2009).