Diversifying Beyond SPY

Investors often use diversification to reduce dependence on a single asset class while maintaining exposure to long-term market growth. A multi-asset approach can combine the growth potential of equities with assets that respond differently to changes in inflation, economic conditions, and investor risk appetite. Periodic rebalancing helps maintain those intended exposures over time.

Here, we build a systematic strategy that allocates 80% of the portfolio to the SPDR S&P 500 ETF (SPY), 10% to the SPDR Gold Shares ETF (GLD), 5% to Bitcoin, and 5% to Ethereum. SPY serves as the portfolio’s core growth allocation, while GLD provides exposure to gold as a potential source of diversification during periods of inflation, economic uncertainty, or market stress. Bitcoin and Ethereum make up smaller allocations, adding exposure to the growth potential of digital assets while limiting the impact of their higher volatility on the overall portfolio.

Our strategy is straightforward. From November 27, 2020, through November 26, 2025, the portfolio maintains a target allocation of 80% SPY, 10% GLD, 5% Bitcoin, and 5% Ethereum. The portfolio is rebalanced quarterly, systematically trimming assets that rise above their target weights and adding to those that fall below them, helping maintain the intended risk exposure rather than allowing recent performance alone to determine the portfolio’s allocation.
 

Over the five-year period, the diversified portfolio generated a 152.6% total return and 20.45% CAGR, compared with 87.24% and 13.41% for the S&P 500 benchmark. Risk-adjusted performance also improved, with the Sharpe ratio rising to 1.11 from 0.70 and the Sortino ratio to 1.58 from 0.96. While the portfolio experienced a slightly larger maximum drawdown of 27.66% versus 25.43%, it recovered faster, taking 425 days compared with 464 days for the benchmark. Overall, the results show how a relatively small allocation to gold and crypto, combined with systematic quarterly rebalancing, improved both absolute and risk-adjusted returns over this period.