A Simple Defensive Strategy Using Stocks, Bonds, and Gold

Finance-focused summary

The video presents a simple defensive rotation strategy designed to reduce drawdowns and smooth portfolio performance rather than maximize income. It uses only three ETFs and rotates the defensive portion between long-term Treasuries and gold based on a relative-strength signal.

Assets / tickers mentioned

• SPY: S&P 500 ETF (stocks core; “never sold” except for discretionary/periodic rebalancing)
• TLT: Long-term U.S. Treasury bonds ETF (defensive asset when favored)
• GLD: Gold ETF (defensive asset when favored)

No other tickers/assets are referenced.

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Strategy / methodology (rules)

• Timeframe: monthly chart data

Core stock sleeve

• Hold SPY as the base position.
• SPY is not sold except for periodic rebalancing at your discretion.

Defensive sleeve rotation (GLD vs TLT)

1. Compute the ratio:
   • ratio = GLD / TLT
2. Calculate the 3-month moving average of that ratio.
3. Trading rules:
   • If the (GLD/TLT ratio) crosses above its 3-month moving average → buy GLD
   • If the (GLD/TLT ratio) crosses below its 3-month moving average → buy TLT
4. Exit rules:
   • Exit GLD when the ratio drops below the moving average again
   • Exit TLT when the ratio crosses above the moving average again

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Core idea

• Stocks remain in the portfolio for return potential.
• The defensive portion switches between bonds and gold depending on which appears stronger defensively, aiming to reduce volatility and drawdowns versus holding stocks alone.

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Key performance / risk numbers cited

(Compared to a SPY buy-and-hold baseline in the video’s backtest)

• Average annual return:
  • Strategy: 9.8%
  • SPY buy-and-hold: 10.5%
• Maximum drawdown:
  • Strategy: 19%
  • SPY: 55%
• 2008 example: strategy lost only 1.8%
• Trading activity:
  • 371 trades
  • Main driver: rebalance SPY every month (noted as potentially unnecessary)

The strategy is described as having slightly lower income/return but significantly smaller drawdowns.

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Explicit recommendations / cautions (as stated)

• The strategy is positioned as a defensive compromise:
  • potentially lower returns in strong bull markets
  • in exchange for lower drawdowns and easier long-term holding due to reduced emotional stress
• Rebalancing SPY every month increases trade count; the video suggests it’s not necessary.

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Disclaimers / disclosures

• No explicit “not financial advice” or legal disclaimer is included in the subtitles provided.

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Presenters / sources

• No individual presenter is named in the subtitles.
• Mentions a website: quantifiedstrategies.com.