Why Do Some Consider 20%–35% Annual Returns Too Low?

After years in quant trading, I'm often asked one question:

"How much can your strategy make in a year?"

When I answer "Long-term annualized return around 20%–35%," the response is sometimes:

"Isn't that too low?"

The issue isn't whether 20%–35% is high or low, but rather—

What are you comparing it to?

If your benchmark is "doubling annually," "20% monthly," or "100% per year," then 20%–35% indeed looks modest.

However, when evaluating a strategy, the real question isn't just "How much do I earn?", but:

"How much risk am I taking for this return?"

Max Drawdown (MDD): A Honest Metric Than Returns

One strategy yields 100% annualized with a 40% max drawdown;

another yields 25% annualized,

but keeps its max drawdown capped at 12%–15%. Which is better?

There is no absolute answer.

What you must consider is: Can you stomach this level of risk?

If you invest $100,000 and your account shrinks to $60,000, can you hold through it?

If not, then stellar paper returns won't translate into actual gains in your pocket.

This is why Maximum Drawdown (MDD) is critical.

MDD measures the peak-to-trough decline in net asset value over a specific period.

For instance, if an account grows from $100K to $120K, then drops to $90K, the MDD is:

(120 - 90) ÷ 120 = 25%

Annualized return shows where you ended up, but hides the turbulence along the way.

Two strategies may both hit 30% annualized: one moves steadily upward, while the other plunges 40% before reaching new highs

—for investors, the lived experience is night and day.

The Deeper the Drawdown, the Harder the Recovery

Many intuitively believe "A 50% loss just needs a 50% gain to recover," but the math says otherwise.

Suppose you start with $100,000:

Loss %	Remaining	Gain Needed	Recovery Level
-10%	$90,000	+11%	Easy
-20%	$80,000	+25%	Moderate
-30%	$70,000	+43%	Challenging
-50%	$50,000	+100%	Hard
-70%	$30,000	+233%	Severe
-90%	$10,000	+900%	Total Loss

Drawdown isn't just "temporary lower profit"—it fundamentally alters the mathematical bar to break even.

Evaluating a strategy requires looking beyond final profit and loss;

you must know how much drawdown was endured to achieve those returns.

High Returns Are Rarely Free

Seeking higher returns usually requires accepting higher volatility or risk exposure.

For a strategy yielding 20%–35% annualized,

raising leverage or position size can indeed boost returns,

but volatility and max drawdown will magnify proportionally.

What is truly worth comparing is not:

"Which strategy earns more?"

but rather:

"What level of risk was taken to generate these returns?"

Higher returns don't equal higher efficiency—

sometimes, you're simply taking on extra risk.

Beware Risk-Return Mismatches

If 20%–35% seems too low,

the search easily shifts to "Is there 50%?" and then "How about 100%?"

Seeking higher returns isn't wrong; the danger lies in rising expectations

driving investors toward leverage, products, or trading methods they don't understand.

High returns aren't inherently scams. What demands high vigilance is:

High Return + Low Risk + Minimal Drawdown + Guaranteed Profits

When someone promises all of these, ask yourself:

"What hidden risk is funding this return?"

Sound strategies clearly explain their return drivers, risk exposure, and worst-case scenarios.

Key Metrics for Strategy Evaluation

Beyond annualized returns, several metrics provide deeper insights into strategy performance:

The Sharpe Ratio measures risk-adjusted return,

the Sortino Ratio isolates downside risk,

and the Calmar Ratio weighs return directly against max drawdown.

These metrics evaluate strategies from different angles,

yet all address the same underlying question:

What risk level was traded for this return?

For example, the Calmar Ratio divides annualized return by max drawdown;

a higher number means more return generated per unit of drawdown risk.

We will cover terms like volatility, Sharpe, and Sortino in upcoming articles.

For now,

understanding MDD puts you far ahead of investors who only track returns.

The Ultimate Question: Can You Hold?

When analyzing performance, don't just ask "Can it earn more?", ask:

"If a historical drawdown occurs again, can I stay invested?"

One strategy has a 15% historical MDD, while another has 40%.

Even if the latter yields higher long-term returns, it may not suit you.

Strategies don't live in spreadsheets—

you must hold through turbulence to realize the returns.

If a 20% drawdown leads to doubt, panic selling, or exiting at the bottom,

historical backtests mean very little.

A strategy may survive a drawdown, but the investor might not.

There is no universal threshold for acceptable MDD;

it depends on capital purpose, investment horizon, risk appetite, and psychological tolerance.

The Real Value of Quant Trading

The goal of quantitative trading isn't maximizing returns at all costs, but:

using a systematic framework to balance risk and return with verifiable rules.

Automated execution, position sizing, and risk controls

help minimize emotional bias in decision-making.

However, quant trading is not risk-free—

it remains subject to shifting market regimes, strategy decay, and liquidity risk.

Quant is not a synonym for low risk or guaranteed returns.

Its core value lies in:

giving you full clarity on what rules you follow and what risks you take for potential gains.

So, Is 20%–35% Really Low?

There is no answer without evaluating risk.

A 30% return strategy with an unbearable drawdown

is often worse for you than a 20% strategy with controlled risk.

Conversely, a 20% strategy—

with transparent risk, tolerable drawdown, and long-term execution—

is by no means a "low return."

The true benchmark is never just return rate, but the full "Return × Risk" profile.

When assessing a strategy, ask yourself:

What is the long-term annualized return?
What is the maximum drawdown?
How long do drawdowns typically last?
Are returns and risks reasonably matched?
Is historical performance consistent?
If the max drawdown happens again, can I stay invested?

True gains aren't figures on a report,

but what you keep after holding through volatility without panic-selling at the bottom.

Investing isn't a sprint to get rich quick.

The real goal is achieving solid long-term returns within your risk tolerance.

Select Your Strategy Allocation

For investors bullish on gold, comfortable with higher volatility, and aiming for strong growth.

For investors prioritizing smooth equity curves, controlled volatility, and steady growth.

For investors seeking cross-cycle allocation with balanced risk and long-term growth.