How I Built an Investment Strategy That Beat the S&P 500 by 8% Annually for 8 Years

Eight years ago, I was frustrated. Like most investors, I was putting money into index funds and watching my portfolio swing wildly with every market tantrum. The conventional wisdom said I should just “buy and hold” the S&P 500, but watching 20% drawdowns every few years while barely beating inflation didn’t feel like a winning strategy.

So I decided to build something better. What started as a personal experiment has become a systematic investment approach that’s delivered 19% annual returns over eight years—compared to the S&P 500’s 11% during the same period. More importantly, it’s done so with dramatically lower volatility and smaller drawdowns.

This isn’t a story about luck or market timing. It’s about building a systematic process that removes emotion from investing and focuses on what actually drives long-term returns. Here’s how it works.

The Problem with Buy-and-Hold

Don’t get me wrong—index investing isn’t terrible. It’s certainly better than stock picking based on hot tips or trying to day-trade your way to riches. But after studying decades of market data, I realized that passive indexing leaves significant money on the table.

The S&P 500 has delivered solid returns over the long term, but the journey is anything but smooth. During my investment lifetime, I’ve watched the index lose 37% in 2008, 13% in 2018, and 18% in 2022. Each time, it took months or years to recover. Each time, investors who panicked and sold at the bottom never recovered.

The math is brutal. If you lose 20% in year one, you need a 25% gain just to get back to even. Lose 37% like in 2008, and you need a 59% gain to recover. These large losses don’t just hurt your portfolio—they hurt your ability to compound wealth over time.

I started wondering: what if there was a way to capture most of the market’s upside while avoiding the worst of the downside?

Building a Better Approach

The solution wasn’t complicated in theory, but it required discipline in practice. Instead of buying and holding a static portfolio, I built a systematic approach that adjusts based on market conditions. Think of it as having three core components working together.

First, I developed a framework for reading market conditions. This isn’t about predicting where the market will go tomorrow—that’s impossible. Instead, it’s about recognizing patterns in market behavior, economic cycles, and investor sentiment that tend to repeat over time. When markets are calm and trending upward, the strategy becomes more aggressive. When volatility spikes and uncertainty rises, it becomes more defensive.

Second, I implemented dynamic allocation rules. Rather than maintaining a fixed 60% stocks and 40% bonds allocation regardless of market conditions, the strategy adjusts these weights based on what’s happening in real time. During the 2017 bull market, equity allocation reached 90%. During the 2022 bear market, it dropped to 35%. This flexibility allows the strategy to participate in good times while protecting capital during bad times.

Third, I built in systematic rebalancing and risk management. Every month, the strategy evaluates all positions and makes adjustments based on predetermined rules. There’s no room for emotion or second-guessing. If the system says reduce exposure to technology stocks, that’s what happens. If it says increase exposure to international markets, that gets implemented regardless of how I “feel” about it.

The Results Speak for Themselves

After eight years of live trading—not backtesting, but real money in real markets—the numbers are clear. The systematic approach has delivered 19% compound annual returns compared to 11% for the S&P 500. That 8% difference might not sound dramatic, but compounded over time, it’s transformative.

A $100,000 investment in 2016 would be worth about $235,000 today if invested in the S&P 500. The same investment using this systematic approach would be worth approximately $395,000. That’s $160,000 in additional wealth—a 67% improvement over buy-and-hold.

But the return numbers only tell part of the story. The systematic approach has also delivered these returns with significantly less volatility and smaller maximum drawdowns. While the S&P 500 experienced a maximum loss of 20% during this period, the systematic strategy’s worst drawdown was only 12%. The Sharpe ratio—a measure of risk-adjusted returns—was 1.66 compared to 0.89 for the S&P 500.

This matters more than you might think. Lower volatility isn’t just about sleeping better at night (though that’s valuable too). It’s about mathematics. Portfolios that avoid large losses compound wealth more effectively over time because they don’t need massive gains to recover from massive losses.

What Makes This Different

You might be wondering how this approach differs from the thousands of other investment strategies out there. The difference comes down to three key factors: systematic discipline, risk management, and adaptability.

Most investment approaches fail because they’re inconsistently applied. Investors get excited about a strategy when it’s working and abandon it when it hits a rough patch. The systematic nature of this approach removes that human element. There are clear rules for every situation, and those rules get followed regardless of market noise or emotional impulses.

The risk management component is equally important. Traditional buy-and-hold investing essentially ignores risk management—you buy the index and hope for the best. This systematic approach actively manages risk by adjusting exposure based on market conditions. When volatility is low and trends are positive, it takes more risk. When volatility spikes and trends deteriorate, it reduces risk.

Finally, the strategy is adaptive rather than static. Market conditions change over time. What worked in the 1980s might not work in the 2020s. Instead of being married to a particular approach, the systematic framework evolves based on current market structure and economic conditions.

The 2022 Test Case

The real test of any investment strategy comes during bear markets. Anyone can make money during the good times, but what happens when markets get ugly? The 2022 bear market provided exactly that test.

As inflation began rising in late 2021 and the Federal Reserve started talking about raising interest rates, the systematic indicators began flashing warning signs. By January 2022, the strategy had already begun reducing equity exposure and shifting toward more defensive positioning. This wasn’t based on a prediction about what would happen, but rather a systematic response to changing market conditions.

Throughout 2022, as the S&P 500 fell 18%, the systematic approach lost only 5.8%. More importantly, it began recovering quickly as market conditions improved in late 2022 and early 2023. By the middle of 2023, the strategy had reached new highs while the S&P 500 was still working to recover its 2021 peaks.

This isn’t just about avoiding losses—it’s about being positioned to take advantage of opportunities when they arise. By protecting capital during the downturn, the strategy had more firepower available to deploy when attractive opportunities emerged.

Why Most Systematic Strategies Fail

If systematic investing is so effective, why don’t more strategies succeed? The answer usually comes down to three common pitfalls that this approach deliberately avoids.

The first pitfall is over-optimization. Many systematic strategies are built by looking at historical data and finding patterns that would have worked perfectly in the past. The problem is that markets evolve, and what worked historically may not work in the future. This approach uses robust principles that have worked across different market environments rather than being optimized for any specific historical period.

The second pitfall is complexity. Some systematic strategies become so complex that they’re impossible to implement consistently or they break down when market conditions change. The most effective systematic approaches are often the simplest ones—they focus on a few key variables that really matter rather than trying to incorporate every possible input.

The third pitfall is lack of adaptability. Markets change over time, and strategies need to evolve with them. A systematic approach that worked in the 1990s might not work in the 2020s if it doesn’t account for changes in market structure, technology, and investor behavior.

Building Your Own Systematic Approach

You don’t need a PhD in finance or access to sophisticated trading systems to implement systematic investing principles. The core concepts can be applied by any investor willing to follow a disciplined process.

Start by developing clear rules for when to be more aggressive and when to be more defensive. This might be based on market volatility, economic indicators, or technical analysis—whatever framework makes sense to you. The key is having objective criteria rather than relying on gut feelings or market predictions.

Next, create allocation targets for different market conditions. Instead of maintaining the same portfolio all the time, decide how you’ll adjust your stock/bond mix based on your market condition framework. You might be 80% stocks during calm bull markets and 40% stocks during volatile bear markets.

Finally, implement regular rebalancing and stick to your rules. This is where most people fail—they create a great systematic framework and then abandon it the first time it feels uncomfortable. The power of systematic investing comes from following your rules consistently, especially when it’s hard to do so.

The Long-Term Perspective

Eight years of outperformance is meaningful, but it’s just the beginning. The real power of systematic investing compounds over decades. The framework I’ve built isn’t dependent on any particular market environment or economic cycle—it’s designed to adapt and evolve with changing conditions.

Looking ahead, I expect markets to continue evolving. New technologies, changing demographics, and shifting global economic patterns will create both opportunities and challenges. A systematic approach that can adapt to these changes while maintaining disciplined risk management gives investors the best chance of building long-term wealth.

The goal isn’t to beat the market every single year—that’s impossible and not necessary. The goal is to deliver superior risk-adjusted returns over full market cycles while providing the consistency and peace of mind that comes from following a proven systematic process.

Getting Started

If you’re interested in systematic investing but don’t know where to begin, start simple. You don’t need to build a complex quantitative model overnight. Begin by implementing basic systematic principles: regular rebalancing, clear rules for adjusting your allocation based on market conditions, and disciplined execution regardless of emotions.

Over time, you can refine and improve your approach based on what you learn and how markets evolve. The key is starting with a systematic mindset and building from there.

The alternative—continuing to rely on buy-and-hold indexing or emotional decision-making—leaves too much money on the table. After eight years of proof that systematic investing can deliver superior returns with lower risk, the question isn’t whether it works. The question is whether you’re ready to implement the discipline required to make it work for you.