Can Stop Losses Improve the NAPS Portfolio?

Many subscribers have been attracted to the NAPS portfolio approach. The headline ~15.5% annualised returns over 11 years, plus a couple of percent in net yield on top, is quite magnetic. But let’s be under no illusions - a fully invested share portfolio with exposure to small and mid-cap shares is guaranteed to deliver some savage drawdowns.  And the recent market volatility in precious metals and info stocks has given many of us a small teaser for what could happen in harder times.

In the pandemic crash of March 2020, the NAPS bottomed at a 46% drawdown. That decline wiped out nearly five years of accumulated gains. I know many investors who threw in the towel entirely during that period and I’m not surprised - it was awful. You have to ask yourself the hard question: Can you sustain a savage drawdown? And if not, how can you minimise it?

So one question I get asked more than any other is: could stop losses help reduce the drawdowns in the NAPS? A couple of weeks ago, in our extensive 100 minute NAPS Portfolio Webinar, I tried to answer this question.

The simulation

I simulated the NAPS portfolio with a 20% stop-loss...