Backtest: Dollar Cost Averaging IWM (iShares Russell 2000 ETF)

This analysis evaluates a dollar-cost-averaging strategy over the past 25 years, providing a historical perspective on IWM's performance from 2000-05-26 to 2025-05-31.

The Dollar Cost Averaging (DCA) strategy follows these rules:

• At the very beginning of the backtest period, if the initial trading date falls before the 5th day of the month, we make a $1,000 purchase on that date. Otherwise, we wait until the next month to begin investing.
• For every subsequent month, we purchase $1,000 worth of the underlying stock on the first trading day of the month.

Note: All prices and share counts in this simulation use adjusted close values. Adjusted close prices retroactively account for stock splits and dividend reinvestment, To achieve similar results in practice, you would need to reinvest all dividends as they are paid.

Performance Overview

Note: The annualized return is calculated using the internal rate of return (XIRR), which takes into account the timing of each investment. This provides a more accurate measure of growth than simple averages or CAGR when cash flows occur over time.

Over the 25-year period, investing $1,000 monthly in IWM resulted in a total gain of 203.95%, with an annualized return of 7.98%.

Drawdown and Risk

The maximum drawdown recorded during this period was 51.71%. This drawdown began after a peak asset of $144,188.43 on 2007-10-09, and reached its lowest point on 2009-03-09 when the asset fell to $69,635.23. The drawdown lasted for 517 days.

Note: The maximum drawdown for Dollar Cost Averaging strategies often appears smaller than the drawdown of the underlying stock. This is because you continue to invest additional funds each month, which smooths the portfolio's decline and helps recover value faster during rebounds. The consistent inflows reduce the impact of temporary losses on previously accumulated capital.

The drawdown was substantial, though not uncommon for long-term equity strategies that span full market cycles. This level suggests exposure to significant corrections or crashes. The maximum drawdown lasted over a year, indicating an extended period of underperformance. This duration is typical of major corrections or bear markets.

The Calmar Ratio — annualized return divided by maximum drawdown — was 0.15, reflecting the tradeoff between return and volatility.

The Calmar Ratio is on the lower side of what's commonly seen in broad-market strategies over extended periods.

Monthly Investment Breakdown