And, if you guessed that the higher risk portfolios would also have higher returns, you would be right (in this case).
For example, if you look at how these portfolios performed since 1970 (using monthly instead of daily data and rebalancing every 6 months), you would see this relationship between risk and reward more clearly:Over this time period, the riskiest portfolio (S&P 500) had the highest total growth while the least risky portfolio (Permanent Portfolio) had the lowest total growth.
And how do I know that the S&P 500 was the riskiest over this time period?
For example, if we invested $1 into each portfolio starting in 2005, the Permanent Portfolio would have taken the lead within a few years despite being the least risky portfolio:And while the lead built by the Permanent Portfolio couldn’t outlast the bull market of the 2010s, the recent coronavirus crash has changed the conclusion once again.
And remember, this optimal portfolio was created by overfitting historical data to find the highest return-per-unit-risk portfolio possible.

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