The idea
3 Sig is value averaging: instead of investing a fixed amount each quarter, you aim for your stock balance to grow a fixed 3% each quarter. When stocks beat the target, you sell the extra into bonds. When they miss, you buy the shortfall with bonds. You end up selling after rises and buying after falls, automatically.
The signal line
Signal line = last quarter's stock balance x 1.03 + half of this quarter's new contributions
New money and dividends go to the bond side.
- Stock balance above the signal line: sell the surplus into bonds.
- Stock balance below it: buy the shortfall, using bonds.
Try it with the calculator below.
The 30 Down rule
If the stock fund closes a quarter 30% or more below its highest quarterly close of the last two years, ignore the next four sell signals. This keeps you fully invested for the rebound.
Results
| Measure | Result |
|---|---|
| Target | 3% a quarter, about 12.6% a year |
| BestFolio corrected backtest CAGR | About 9.0% |
| Max drawdown | About -52% |
| Sharpe | About 0.31 |
Several older community simulators contained errors (wrong starting mix, wrong 30 Down lookback, missing reset rules). A Bogleheads test found plain buy-and-hold beat 3 Sig over its window.
Open and closed systems
With regular contributions, new money refills the bond buffer. Without them, a long bear market can use up the buffer, leaving nothing to buy with.
Risks
- The buffer can run out in long declines.
- Bonds can fall with stocks, as in 2022.
- A fixed target ignores what the market is doing.
- Not reliably better than buy-and-hold; frequent selling can add taxes. See Capital gains tax on investments.
Signal line calculator
Enter your balances at the end of the quarter. Nothing is sent anywhere; the sum runs in your browser.
Signal line = last quarter's stock balance × (1 + target) + half of this quarter's new money. The 30 Down rule, the 9 Sig buying throttle and the Spike Reset are explained above and are not applied automatically.
See also
- 6 Sig The 6 Sig strategy applies Kelly's signal line to MVV, a 2x leveraged midcap fund, with a 6% quarterly target. Rules, 30 Down reset, results and risks.
- 9 Sig The 9 Sig strategy uses Kelly's quarterly signal line on TQQQ with a 9% target. Rules, the buying throttle, Spike Reset, 30 Down history, results and risks.
- Leveraged strategies compared A side-by-side comparison of six leveraged ETF strategies, 3 Sig, 6 Sig, 9 Sig, TQQQ FTLT, Holy Grail and HFEA, by holdings, signals, results and risk.
- Dollar-cost averaging vs lump sum Dollar-cost averaging compared with investing a lump sum at once: what the historical evidence shows, and when spreading purchases out still makes sense.
Last updated September 30, 2026. Education only, not investment advice.