Formula to beat S&P 500 over time

[moontower]

Best ways to beat SPY are Wisdom Tree's Efficient core (symbol NTSX) or RPAR.

I also have backtested a "risk parity" portfolio that wins handily over time and mimics what a lot of the big hedge funds and Goldman do. YES YES YES with the secular bull in Treasuries perhaps ending, the negative correlation of Treasuries will diminish, but with quarterly rebalancing the formula still delivers huge gains over SPY by about 460 basis points with almost HALF the volatility/drawdowns.

Curious what folks here think?

VUG - 70%
TYD - 10%
TMF - 10%
SSO - 10%

 

[moontower]

Backtest

backtest of VTI/TMF/TYD/SSO

 

[Lsbcal]

VUG, large cap growth has had a great run over the last 25 years or so. I don't see your time period in the thumbnail but there were periods of years where other asset classes did much better relative to VUG. Now we have had a great run for VUG since 2010 and so is this just recency bias? Just asking as I don't have the answer for the future.

FWIW, I have a big helping of VUG.

Here is a long term view of Vanguard asset class indexes funds. LG = VUG. Each is relative to the SP500:

 

[moontower]

Period is since Dec 2009 (when TYD and TMF were created).

Agree on VUG likely returning to mean.

It works almost as well with VTI. Key is that the negative correlation with treasuries protects and therefore magnifies VTI gains especially with quarterly rebalancing.

 

[aja8888]

There are threads on Bogleheads discussing NTSX and what to pair it with.

 

[Montecfo]

These are relatively short periods of time and all within the "Fed era'. Not sure this is meaningful going forward.

 

[target2019]

I try to stay aware of statements such as this one on Vanguard's VUG page:

Important Vanguard ETF® performance information
The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate so that investors' shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. Get details on the ETF's performance, including standardized returns as of the most recent quarter-end, and on its expenses and fees.

Similar language can be found on every prospectus and investment company page.

 

[freedomatlast]

For growth, I like Fidelity Growth Company Commingled Pool.

1 Yr +31.88%
3 Yrs +39.32%
5 Yrs +31.91%
Life +23.67%

 

[OverThinkMuch]

Best ways to beat SPY are Wisdom Tree's Efficient core (symbol NTSX) or RPAR.

I also have backtested a "risk parity" portfolio that wins handily over time and mimics what a lot of the big hedge funds and Goldman do.

Does RPAR "wins handily over time"?

When I multiply 2020 and YTD performance together, the S&P 500 (SPY) is beating it by 10% in 2 years. It seems more accurate to say it has lost badly over a very short time period.
https://finance.yahoo.com/quote/SPY/performance?p=SPY
https://finance.yahoo.com/quote/RPAR/performance?p=RPAR

 

[moontower]

Correction - RPAR not designed to beat SPY

Correction, I erred by including RPAR, RPAR is the basic model of "risky parity" and is for risk-averse investors. RPAR will trade upside for lower volatility as compared to SPY. RPAR is the basic risk parity model and NTSX is risky parity that uses leverage in form of treasury futures to beat SPY (a little) with less volatility/drawdown (a little).

My formula beats NTSX over time (by a lot). There's an even more aggressive (I would say irresponsible) version on Bogleheads using UPRO/TMF at 55/45. Has 3x leverage so could easily blow up in next crash, I DONT recommend UPRO.

The point about the Fed era of easy money of last 40 years changing everything going forward is a little overblown. Spy will still average positive returns over next 40 years even if it is less that last 10 or 20. Buying SPY or VTI is buying a piece of the economy....the world is not going to end. Worst case is a lost decade like in the 70s but unlikely across the board because more activist Fed now and more tech disruption that will always make money. Just my opinion.