With the weekend approaching, I would like to summarize how to limit and manage the maximum drawdown of aggressive assets within the monthly installment pension portfolio that I have been contemplating throughout the week.
Table of Contents
Advantages of Asset Allocation Investment
The biggest advantage of asset allocation investment is that you can grow your assets to more than double the deposit interest rate by holding market index ETFs in a fixed proportion and rebalancing only once a year. You can sleep soundly at night with your legs stretched out throughout the entire investment period.
What is the appropriate aptitude for a 30-year long-term monthly installment investor?
Those who enjoy checking stock prices every day and discussing trading profits with those around them find my style of portfolio investment quite boring.
I practice asset allocation investment to prevent excessive allocation of my money to stocks through thorough asset diversification, and to defend against losses of less than -15% even during market crashes like the 2008 subprime mortgage crisis and the 2000 dot-com bubble crash. Of course, I am well aware that if you consistently accumulate Nasdaq 100 index ETFs for 30 years, they will trend upward and grow into a very substantial asset after that time.
If I were an investor in my 30s, I would also want to consistently accumulate only QQQ. However, as I am reaching the age where I must consider wrapping up my professional life, I am unfortunately not in a position to aggressively accumulate only QQQ.
The assets I am accumulating from now on are like spring water that my family must draw from little by little throughout our lives. Spring water cannot quench our thirst abundantly, but if we cannot drink even spring water, living things will eventually die.
How to Calculate the Maximum Drawdown (MDD) of an Asset Allocation Portfolio
Recently, as I was adding AI data center-related ETFs indiscriminately, my MDD had increased without me even realizing it. Taking QQQ as an example, its weighting was around 10% of the total portfolio, and since it fell by as much as -80% during the crash of the IT bubble in 2000,
considering its impact on the overall portfolio, it acts as an MDD of -8%.
Since the target for the asset pension portfolio is -15%, -8% represents half of the total target MDD, making it a high-risk stock.
As the AI data center-related DRAM ETF, AIPO, and IVEP ETFs have only recently been listed, it is impossible to know how much they will fall.
Since the DRAM sector is largely comprised of SK Hynix and Samsung Electronics, predicting the decline of individual stocks reveals that drops of -50% after cycles have frequently occurred, and they have created periodic rises and falls.
If 20% of the total assets were composed of 10% QQQ and 10% DRAM, the MDDs for the two stocks would be -8% and -5%, respectively. The combined MDD for these two stocks has already reached -13%.
It is nearly impossible to keep the MDD of the remaining stocks within -2%. This implies that the weighting of QQQ and DRAM must be further reduced.
Rebalancing Timing
Rebalancing is generally done once or twice a year, either before paying comprehensive income tax in May or at the end of the year when transferring capital to a pension savings account. Sometimes investors fill the 6 million won limit for the pension savings account immediately at the beginning of the year to meet the 6 million won threshold for the following year.
Since depositing 3 million won into an IRP account provides tax deduction benefits, investors also deposit 3 million won at the beginning of the year.
How Should the Rebalancing Ratio Be Determined?
It is generally common to achieve a return of 10% to 15% annually by consistently practicing asset allocation investing. When the market is falling, once your paycheck comes in, you should buy a little more of the depreciated assets, use the remainder to buy bonds, cash-equivalent SOFR ETFs, and KOFR ETFs, and also purchase gold ETFs according to the set proportions.
The moment of increasing concern arises when US and Korean stocks are rising rapidly due to the recent AI data center boom. I am considering adding semiconductor sector ETFs rather than holding only national index ETFs.
I have added AI power infrastructure ETFs such as AIPO and IVEP, and for Korean-style ETFs, I have added KODEX AI Power Core Infrastructure ETF and KODEX US AI Power Core Infrastructure to monitor market fluctuations.
Is it absolutely necessary to include leveraged ETFs in a pension asset allocation portfolio?
During periods of low returns, I also incorporated very small amounts of SSO (VOO’s 2x leverage) and UPRO (VOO’s 3x leverage) during pullbacks.
However, I apply leveraged ETFs only under very limited conditions. Please be sure to read the posts regarding leverage in the list below, as they cover the topic in detail.
Among famous YouTubers, there is a doctor who accumulated 10 billion won by using 3x leverage with a guardrail and making monthly installment purchases. There are also those who employ the “Pond Trading Method,” buying in dips and selling in overheated zones with an RSI above 75 to secure 30% in cash.
I manage my retirement pension asset allocation investment portfolio much more conservatively than this. If you are a young adult in your 20s or an unmarried office worker in your 30s with a monthly salary of over 3 million won, I would also try accumulating QLD—QQQ’s 2x leveraged version—through regular installments for 30 years.
However, for the many readers of my posts who wish to grow a stable pension, there is no need to invest in risky derivative products where the Maximum Drawdown (MDD) can reach as low as -80% every five years.
The reason I am specifically explaining how to limit MDD today is to research strategies to protect my family’s retirement pension assets from shrinking in the event of a worst-case Black Swan event, which would cause volatile thematic ETFs like QQQ, AIPO, and SMH to fluctuate wildly.
I hold individual stocks at less than 1%, even if they are promising like Broadcom or Google. If the stock price continues to rise and exceeds 3% of my total pension portfolio, I sell the entire amount and reallocate it by buying fractional shares in the portfolio below.
VTI 20
QQQ 5
MAGS 5
AIPO 5
SMH 5
VXUS 20
SGOV 10
BND 15
IAUM 15
Originally, I held 20% of my pension portfolio in IAUM, a gold ETF. However, since returns had already exceeded 100%, I reduced its weight and reallocated it by diversifying into other ETFs.
The return from January to May 2006 is approximately 6%. I am working incredibly hard on mind control to avoid comparing my returns with others or competing with them.
Maximum Drawdown (MDD) during Historical Market Crashes for Each ETF (Including Estimates)
The MDD for each asset class, based on major historical market crashes—① the Dot-com Bubble (2000–2002), ② the Global Financial Crisis (2007–2009), ③ the COVID-19 Pandemic (February–March 2020), and ④ the 2022 bear market triggered by interest rate hikes (January–October 2022)—is as follows:
| ETF (Weight) | Asset Class (Proxy) | Dot-com Bubble (2000-2002) |
Financial Crisis (2007-2009) |
COVID-19 (2020) |
2022 Bear Market (2022) |
|---|---|---|---|---|---|
| VTI (20%) | US Total Stock Market | -49% | -55% | -35% | -25% |
| QQQ (5%) | NASDAQ 100 | -83% | -54% | -30% | -35% |
| MAGS (5%) | US Big Tech Top 7 | N/A | -55% | -30% | -45% |
| AIPO (5%) | AI & Power/Utility | N/A | -50% | -35% | -25% |
| SMH (5%) | US Semiconductors | -83% | -65% | -34% | -45% |
| VXUS (20%) | Global ex-US Stocks | -50% | -60% | -35% | -27% |
| SGOV (10%) | Ultra-Short Treasury (Cash) | 0% | 0% | 0% | 0% |
| BND (15%) | US Aggregate Bond | +Positive | -5% | -6% | -17% |
| IAUM (15%) | Gold (IAU/GLD) | -15% | -30%* | -12% | -20% |
* The IAUM figure for the 2022 bear market (-20%) is based on the proxy asset’s historical data.
Estimated Portfolio MDD by Crisis
2022 Interest Rate Hike Bear Market MDD: Approx. -23.5%
Cause: It was a year in which stocks (-25–-45%), bonds (-17%), and gold (-20%) experienced an unusual simultaneous decline. Only the cash-equivalent asset SGOV (10%) is providing protection against the decline.
The portfolio as a whole recorded a drop of approximately -23%.
2020 COVID-19 Pandemic MDD: Approx. -21.5%
Cause: Although the stock market plummeted by -30% to -35% in just one month, safe assets such as bonds (BND) and cash (SGOV) held firm, and gold (IAUM) also saw a limited decline (-12%), significantly reducing the portfolio’s drop compared to the stock market.
2008 Global Financial Crisis MDD: Approx. -32.5%
Cause: This was the worst period when US and global stocks were cut in half (-55% to -60%).
However, when stocks hit bottom, gold (IAUM) and bonds (BND) acted as a shield for the portfolio, preventing a decrease in total assets.
The drop was reduced by nearly half compared to pure stock investment.
Here are the summaries of each link provided, translated into English and including the specific Return Rate and MDD (Maximum Drawdown) metrics mentioned across the blog’s strategic analyses.
A detailed guide on how to build a pension portfolio
- Return Rate: 15% Annual Fixed Interest (Staking Yield) | MDD: -6.5% to -6.9% https://bomspring.com/clarity-act-hive-hbd/ → Under new regulatory frameworks like the Clarity Act and FIT21, this strategy highlights the Hive ecosystem’s stablecoin (HBD) as a premier Real World Asset (RWA) yield vehicle. By utilizing HBD staking, investors can secure a reliable 15% annual fixed return while keeping the overall portfolio volatility incredibly tight, maintaining a historical MDD between -6.5% and -6.9%.
- Return Rate: 2.09% to 14.2% (Historical MA Strategy Range) | MDD: -14.7% Maximum (Tight Protection) https://bomspring.com/strl-fix/ → This post evaluates tactical structural fixes using moving average crossover indicators (e.g., 10-day/60-day) to navigate market regimes. While purely defensive single-asset indicators yield a wide performance range (2.09% to 14.2%), applying this strategic fix prevents capital destruction during severe equity corrections, effectively keeping the maximum drawdown (MDD) strictly capped below -14.7%.
- Return Rate: 7% to 9% Target Long-Term CAGR | MDD: -15% to -25% (Controlled Allocation) https://bomspring.com/global-economic-trends-that-portfolio-investors-must-know-and-asset-allocation-know-how-to-safely-protect-your-retirement-funds/ → Addressing macro challenges such as surging corporate bond spreads, high inflation, and impending market bubbles, this guide introduces an optimized asset allocation model designed to protect retirement funds. Balancing offensive tech ETFs (AIPO, SMH, MAGS) with defensive pillars (BND, IAUM, SGOV) aims to comfortably achieve a long-term compound growth rate of 7% to 9% while dampening macro-driven market shocks to a manageable MDD of -15% to -25%.
- Return Rate: 10% Annual Target Growth | MDD: 15% Target Limit https://bomspring.com/ibkr-how-to-buy-korean-stock-etf/ → This article provides a comprehensive guide for global and US-resident retail investors on how to purchase South Korean stock ETFs—specifically centering on AI power grid and tech infrastructure sectors—using the Interactive Brokers (IBKR) platform. By properly adjusting specialized sector weightings within the platform, investors can seamlessly target an optimized 10% annualized return while restricting the overall account MDD within a 15% limit.
In conclusion
In the next post, we will examine various cases regarding the bond ladder strategy, which is most frequently mentioned by retirees on Boglehead, and look at whether the bond ladder strategy effectively defended against risk during historical market crashes.