High vs. Low CMRI: A Question of Volatility

Here’s a real-world picture of how the CMRI affects investments. The pink line shows how a low-Composite MacroRisk Index portfolio would have performed from January of 2007 through June of 2009. In contrast, the blue line demonstrates how a high-CMRI portfolio would have performed. (In the model, we rebalanced the portfolios every three months to maintain a high versus a low CMRI.)

As you can see, the high-CMRI portfolio was far more unstable than the low-CMRI portfolio. In good economic times, it makes sense to have a bit of risk — the blue portfolio made far more than the pink one in several months. But in times of economic trouble, such as during the 2008 credit crunch, adopting a low-risk portfolio like the one shown in pink can help protect your investments from the market’s adverse effects.

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