Strategy Design · Pooling + Rebalancing · Actual Daily Backtest
The Monthly Compounder
A diversified, monthly-rebalanced pool engineered for one objective — the highest achievable share of green months — with a single leverage dial for anyone willing to trade consistency for growth.
If monthly returns are roughly bell-shaped, the fraction that come out positive is Φ(mean ÷ monthly-vol) —
the cumulative-normal of the monthly Sharpe ratio. So "maximize profitable months" is not a vibe; it is a single number to maximize:
drift per unit of monthly volatility. That target dictates the whole design — diversify to raise the ratio, rebalance to hold it,
and treat leverage as a separate dial, because leverage scales drift and volatility together and can only lower the ratio (via financing).
02 The strategy
Five sleeves, fixed risk-balanced weights, rebalanced monthly
Specification
Pool
Five weakly-correlated sleeves, so something is usually working:
VTI 15%IEF 32%GLD 16%DBC 15%DBMF 22% equities · Treasuries · gold · commodities · managed-futures trend — weighted roughly inverse-to-volatility.
Rebalance
Monthly, back to the target weights. This resets the risk balance and harvests the rebalancing premium on the same cadence you're optimizing.
Weights
Fixed and strategic — set once, not chased. Re-estimating weights from trailing volatility each month lowered the hit rate (it underweighted the winners); hold the targets steady and only revisit them ~annually.
Leverage
1× for maximum monthly consistency. A vol-target overlay can dial exposure up for more growth — but every notch spends green months (see §04).
Timing
None. A 200-DMA switch whipsaws a diversified pool. Trend already lives inside the book as the 22% managed-futures sleeve — continuous, no whipsaw.
03 The result
68% of months were green — and the drawdowns stayed shallow
Green months
68%
41 of 60 positive
Avg month
+0.68%
worst −3.2% · best +4.0%
Monthly Sharpe
1.49
annualized (vs 0%)
$100k →
$149k
+49.2% · 8.3%/yr · DD −6.1%
Every month, 2021–2025 · 41 up · 19 down · deepest month −3.2%. Note the 2022 bear (bars 13–24) stayed shallow — the diversifiers absorbed it.
This is the point of the whole exercise: not the biggest number, the steadiest one. A monthly Sharpe of 1.49 means roughly two of every
three months print a gain, the average loss month is small, and the worst was just −3.2%. That consistency — not raw return — is what "optimize for monthly profitability" buys you.
04 The dial
Leverage buys growth by spending green months
Same pool, same monthly rebalance — only the volatility target (hence average leverage) changes. Watch consistency fall as return rises:
the dial · consistency ↔ growth
Setting
Avg lev
Green mo
Monthly Sharpe
CAGR
Max DD
$100k →
Monthly-profit optimum
1.0×
68%
1.49
8.3%
−6.1%
$149k
Balanced vol-tgt 8%
1.3×
63%
1.27
9.1%
−6.9%
$154k
Growth vol-tgt 10%
1.6×
62%
1.16
10.3%
−8.8%
$163k
Aggressive vol-tgt 12%
2.0×
60%
1.08
11.4%
−11.1%
$172k
The monthly-profit objective points to the top row: 1×, no leverage. Every notch up trades ~2 green months per 60 and ~2 points of drawdown
for a few points of CAGR. If your goal were total return (the earlier studies), you'd ride this dial upward; because the goal here is profitable months, you stay at the top.
05 Why this shape
Three findings from the earlier backtests, baked in
Diversification makes the green months. The pool's monthly Sharpe of 1.49 comes from five uncorrelated streams — when one is red, another is usually green. A single low-vol equity sleeve (SPLV) scored a fraction of that, because it's still one bet.
Don't chase the weights. Dynamically re-weighting to trailing volatility each month lowered the hit rate (67% vs 68%) and the return — it kept underweighting the sleeve that was winning. Fixed strategic weights, rebalanced to, beat weights re-estimated each month.
Don't time it. A 200-DMA on/off overlay whipsawed this pool in every no-sustained-bear window and barely helped even with 2022 included — because the trend protection you want is already the DBMF sleeve, held continuously.
06 Honest accounting
Why the 1.49 is a ceiling, not a promise
Discount these before you believe it
Gold outlier
GLD +64% in 2025 is doing real work, and the fixed weights held 16% of it throughout. That single run lifts both the return and the hit rate; it will not repeat.
A calm regime
Realized volatility was unusually low, which inflates the monthly Sharpe. 1.49 is a high-water mark — assume something closer to 0.8–1.0 (≈60–63% green months) going forward.
One bear only
The window holds a single bear (2022), and the diversifiers happened to handle it well. A clustered crisis (2008-style) would produce deeper, more frequent red months than anything shown here.
Metric footnote
The monthly Sharpe here is measured vs 0% (a green-month is a gain), not vs the risk-free rate — so it reads higher than the ~0.7 excess Sharpes quoted in the earlier leverage studies. Different question, different denominator.
Not modeled
Taxes, trading costs, slippage, and the small real cost of monthly rebalancing. All would trim the edge; none would reverse the shape.
07 The run-book
What you actually do each month
Hold the pool at target weights — VTI 15 · IEF 32 · GLD 16 · DBC 15 · DBMF 22.
On the last trading day of each month, rebalance back to those weights. That's the whole active step.
Leverage: 1× for the monthly-profit objective (or pick a row from the dial and vol-target to it, financed via futures).
No market-timing, no weight-chasing. Revisit the strategic weights about once a year, not monthly.