Comparative Analysis
Client Proposal: Comparative Analysis of Sigma 3’s Custom Investment Strategy vs. S&P 500 Indexing (10-
Year and 15-Year Horizon with $75,000 Withdrawal in Year 5)
Objective:
This proposal presents a comparison between Sigma 3’s custom investment strategy and a traditional S&P
500 index investment over both 10-year and 15-year time horizons. Additionally, we incorporate a scenario
where $75,000 is withdrawn in year 5 for a down payment on a house, while maintaining a 25% margin loan.
Our goal is to demonstrate how this strategy maximizes long-term growth while managing risk and leveraging
your investments.
Overview of Sigma 3’s Strategy:
Our custom strategy is built to balance high-growth stocks, defensive assets, and additional income from
covered options. We also use leverage with a margin loan, which allows us to amplify returns while
maintaining manageable risk levels.
1. Stock Selection: We have created a diversified portfolio of 9 holdings across key sectors, such as
technology, healthcare, energy, and alternative assets like gold. This provides a balance between
growth opportunities and stability.
2. Leverage: We maintain a 25% margin loan, using borrowed funds to reinvest in the portfolio. This
leverage boosts returns by increasing the amount of capital invested while keeping the risk
manageable.
3. Options Strategy: We implement a covered call strategy to generate additional income, potentially
increasing returns by 2% per year.
4. $75,000 Withdrawal in Year 5: In year 5, we assume a withdrawal of $75,000 from the portfolio for a
down payment on a house. After this withdrawal, the remaining portfolio continues to grow,
benefiting from both the initial investments and monthly contributions.
Performance Analysis:
1. Growth Potential:
With an expected annual return of 16.66%, the Sigma 3 portfolio continues to outperform the
S&P 500’s projected 11% return.
Despite the $75,000 withdrawal in year 5, the Sigma 3 portfolio is still projected to reach
$1,253,419 after 10 years and $2,955,190 after 15 years, compared to the S&P 500’s
$967,036 and $1,584,263 respectively.
2. Leverage:
Maintaining a 25% margin loan throughout the 15-year period allows us to invest additional
capital, enhancing the portfolio’s growth potential. This leverage helps increase overall
returns, assuming market conditions remain favorable.
At the end of the 10-year and 15-year periods, the margin loan (including accrued interest) is
fully repaid, and the values presented reflect the net portfolio value after paying off the loan.
3. Options for Extra Income:
We continue to use a covered call strategy to generate additional income on some of the
holdings. This strategy is projected to add an extra 2% to the portfolio’s annual returns,
helping mitigate the impact of the withdrawal and further boosting the portfolio’s growth.
4. Risk and Volatility:
The Sigma 3 portfolio’s beta is approximately 1.20, meaning it is expected to experience
greater volatility than the S&P 500. The higher beta reflects the inclusion of growth-oriented
stocks such as Robinhood and Netflix.
While the portfolio is more volatile, it also provides significantly higher growth potential
compared to the S&P 500, even with the $75,000 withdrawal.
Risk Management:
We carefully manage risk through the following measures:
• Defensive Assets: By including defensive assets like SPDR Gold Shares (GLD) and Pfizer (PFE), we help
reduce overall portfolio volatility during times of economic uncertainty.
• Sector Diversification: The portfolio spans multiple sectors, reducing exposure to any single industry.
• Moderate Leverage: The 25% margin ratio provides a balance between enhanced growth and
manageable risk. Even with the margin loan, we ensure the portfolio remains resilient against market
fluctuations.
Why This Strategy Makes Sense:
1. Superior Growth Potential: Despite the $75,000 withdrawal in year 5, the Sigma 3 portfolio is
projected to grow to $1,253,419 after 10 years and $2,955,190 after 15 years, significantly
outperforming the S&P 500.
2. Income Enhancement: Covered options provide additional income that helps offset the impact of the
down payment and further enhances portfolio returns.
3. Margin Loan Payoff: The final values after both 10 and 15 years reflect the net value after paying off
the margin loan, meaning you’ll have fully settled all liabilities while still achieving substantial growth.
Conclusion:
Sigma 3’s strategy offers a powerful approach to aggressive growth, even while accounting for a $75,000
down payment on a home in year 5. Over both a 10-year and 15-year horizon, the portfolio is designed to
significantly outperform a traditional S&P 500 index investment. With smart leverage, additional income from
covered options, and a diversified portfolio, we aim to maximize your long-term wealth while carefully
managing risk.
We are here to discuss this strategy further and tailor it to meet your specific financial goals.
Prepared by:
Sigma 3 Capital
11. Disclosure
Important Notice:
Advisory services are offered through Sigma3Capital LLC an Investment Advisor in the State of CA.
Sigma3Capital LLC and Long Nguyen are not affiliated with or endorsed by the Social Security Administration
or any other government agency.
All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the
basis for any financial decisions. Nor is it intended to be a projection of current or future performance or
indication or future results. Purchases are subject to suitability. This requires a review of an investor’s
objective, risk tolerance, and time horizons. Investing always involves risk and possible loss of capital.
The information contained in this material has been derived from sources believed to be reliable but is not
guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials
discussed. Total return and principal value will vary depending upon the deduction of advisory fees, brokerage
commissions, reinvestment of dividends and other earnings or fund charges. This information is provided to
you in combined form, solely for your convenience and ease of review and is not an offer or solicitation to buy
or sell any securities. In order to verify that all account values and transactions are accurate, we encourage
you to compare the information provided in our statement with the statement you receive directly from your
custodian. All content is for information purposes only. It is not intended to provide any tax or legal advice or
provide the basis for any financial decisions. Nor is it intended to be a projection of current or future
performance or indication or future results.
Purchases are subject to suitability. This requires a review of an investor’s objective, risk tolerance, and time
horizons. Investing always involves risk and possible loss of capital.
Thank you for considering this investment proposal. We are committed to supporting you in achieving your
financial objectives and look forward to working closely with you on this journey.
