A need for a Rules-Based Approach
Target Date Funds have delivered growth, but at times with steep drawdowns of up to -37%. Could a rules-based approach like the WavRyder Signal have offered a better balance—’Riding the Waves while Dodging the Storms'?
The WavRyder Signal in a Nutshell
At the close of every trading day, we publish the WavRyder Signal — a simple Green or Red light signal generated from our algorithm derived from a 60-year back-test model.
Green Light – Historically aligned with periods of market strength.
Red Light – Historically aligned with periods of market weakness.
No noise. No guesswork. No Complex Interpretation Necessary.
20-Year Back-test: Comparing Typical Target Date Fund Growth vs. The WavRyder Signal Alternative
In a 20-year back-test analysis, a hypothetical $400,000 investment in a WavRyder-adjusted portfolio showed higher historical returns than a traditional Target Date Fund.
WavRyder Signals | $1.2M more growth at a lower risk profile
The WavRyder Difference | “Ride the Wave…Dodge the Storms”
The below graph is a 20-year comparison of annual returns on both the standard Target Date Fund 10 years away from retirement and an alternative combination portfolio investment of the three major index ETFs - one-third invested in each of the Dow, Nasdaq and the S&P 500 index ETFs.
WavRyder | Protects on the way down, profits on the way up.
Understanding Risk and Reward
Most investment models do well when market returns are positive
The challenge of traditional approaches - Target Date Funds and other conventional portfolios tend to follow the market up and down. While this approach captures growth, it also exposes investors to periods of steep losses, which historically can make early retirement years more precarious.
Adding perspective with the WavRyder Signal - Back-tests spanning 60 years show how the WavRyder Signal highlighted periods of market strength and weakness, providing a rules-based perspective for potential adjustments.
Clear and Straightforward Signals
No need for a PhD to decode complex charts or levers - just a red light or a green light in your email at the close of each trading day
Analysis #1 - Establishing The Baseline
In this analysis, we back-test and summarize the actual performance of the Target Date Fund over the last 20 years.
Target Date Fund | Underwhelming Growth & Substantial Worst Annual Loss
Analysis #2 - Adjusting the Baseline
First, let’s compare the unadjusted Target Date Fund results over a 20-year back-test to four unadjusted broad-based market index funds, as follows:
Target Date Fund - the unadjusted Target Date Fund results from above
Fund 1 – Tracks the Nasdaq
Fund 2 – Tracks the S&P 500
Fund 3 – Tracks the Dow Jones
Fund 4 (Combo of 1-3) – A balanced mix: one-third of each index funds from above
The growth results are impressive—but the real concern still lies in the steep one-year declines each fund experienced over the past 20 years, along with the elevated risk reflected in their Beta measures.
Unadjusted Alternatives | Better Growth but Still Substantial Worst Annual Loss
For those within 10 years of retirement, historical data shows that large drawdowns can create heightened stress and affect peace of mind. A primary goal for many investors is often balancing growth with downside mitigation.
Analysis #3 - Applying the WavRyder Signal to the Alternate Portfolios
In a 20-year back-test, applying the WavRyder Signal to broad-based market index funds showed reduced volatility and smaller drawdowns compared to static allocations. While Target Date Funds followed a different path, this historical analysis illustrates how a rules-based signal can provide another perspective for investors to consider.
WavRyder Signal Adjusted Portfolios | Lower risk & Higher Growth!
The WavRyder Signal Adjusted Portfolios — Insights from a 20-Year Back-Test
Stronger Growth (Historical): In back-tests, the Signal-adjusted portfolios showed higher returns than static allocations, including Target Date Funds.
Bigger Portfolio Value (Illustrated): The back-tests demonstrated greater long-term dollar growth when compared side by side.
Stronger Defense: The model reduced drawdowns during past market declines, softening the impact of downturns.
Smarter Risk Perspective: By highlighting periods of market weakness, the Signal improved several historical risk measures — showing how a rules-based approach can provide another way to balance risk and return.
These results are based on historical back-testing. Past performance is not a guarantee of future results. The WavRyder Signal is provided for general informational and educational purposes only and does not constitute individualized investment advice.
Want to see a more detailed analysis of the above? https://dans-newsletter-a7019d.beehiiv.com/p/wavryder-signal-outperforms-the-target-date-fund-detailed-analysis
Note: Our signals are designed to inform, not instruct. We do not provide individualized investment advice or recommendations. The signals are generated from a long-term, 60-year back-test and are shared as general information for you to evaluate within your own investment approach. This material is educational in nature, is not tailored to any specific investor, and should not be the sole basis for investment decisions. Always consider your unique financial situation and consult with a qualified financial professional before making investment choices.