ZuluTrade Blog

Portfolio structure. The basics. Goals and Limitations.

Knowledge Crunch | Wednesday, April 14, 2021 4:16 PM GMT

So, you have seen the traders’ pages, assessed their performance and future potential, and decided to include them in your portfolio.
But how is a portfolio being built?
Can we include all the best traders, performance-wise, or should we follow a more sophisticated approach?

There are three Basic Portfolio Pillars.

1. Risk and Reward extrapolation

2. Exposure diversification

3. Constant rebalancing

When setting up a portfolio someone should always take into consideration these three principles.
Firstly, as an investor, you should define your risk tolerance.
What is your risk profile?
Do you wish to cap your future Maximum Drawdown Percentage (MaxDD%) to a specific number (i.e 20%, 30%)?
Can you “stomach” even more exposure to your account?
This obviously is an answer, that you only know.
Likewise, for your targeted Return of Investment Percentage (ROI%).

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Be realistic with your goals.
Having -impossible to achieve- targets will lead you to a definite spiral of investing mistakes.
Not honoring drawdown limits, overleveraging the account, not updating your portfolio and many other actions can wreak serious havoc to your capital.
In order to provide you with a basic idea of what an unleveraged portfolio should expect we present to you a statistical analysis of S&P500’s yearly performance in the last 90 years.


What we can take from this analysis is that S&P500 provides a maximum 40% return with an equivalent 40% drawdown. Moreover, as an average, S&P offers 12% and -5% in its positive and negative years respectively.

It should also be noted that very few Hedge Fund managers are successfully generating “alpha” in relation to the US Indices.
So, if the creme de la creme of trading can marginally generate three times more its risk and the maximum projected volatility of one of the most popular financial instruments is 40%, which should be your goals and limitations?
Choose them carefully, as they are the values that would define your whole portfolio’s structure.

Stay tuned! More to come!


The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in the report do not represent the opinion of ZuluTrade Social Trading Platform and do not constitute an offer or invitation to anyone to invest or trade. Every metric and the statistical number is a result of a past performance, which does not constitute a promise or a certainty for a future one.

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