A Fundamentally New Way to Invest
On this site I have introduced a new approach to investing called Dynamic Investment Theory (DIT) and a new investment type called Dynamic Investments (DIs). DIT does not simply "tweak" Modern Portfolio Theory (MPT), today's standard for portfolio design; it is a completely different way to investing. And when the constraints of MPT are removed, the entire world of investing is free to evolve as it must in order to cope with today's market dynamics.
On this page I discuss just a few of the major changes that will exist in the DIT-based future of investing. They will surprise you. You have probably been taught that many of them are not possible. But once the fundamental way we invest changes from MPT to DIT, the impossible becomes the normal.
To understand how these changes are possible you need to know how Dynamic Investments work. If you need a refresher, go to this link.
Ten Fundamental Changes (Plus One)
The future of investing will not look like it does today. It can't. The MPT portfolio design methods that are in universal use today simply no longer work in modern markets. At it's no wonder; they were introduced in 1952 when markets were a far different place. This is about to change. Dynamic Investment Theory (DIT), that you are learning about on this site is the first approach to portfolio design and investing in general designed specifically to work in modern markets. And extensive testing by the NAOI shows that it works far better than decades-old MPT methods.
DIT and the use of DIs introduce dozens of fundamental changes to how investing works today. You can read about these and others the Amazing Future of Investing Book that can be purchased in the NAOI store. Below I list ten of them just to illustrate the types of changes that are coming. Prepare to be amazed.
1. Dynamic Investments (DIs) Have a Universal Goal. - In today's MPT world of investing portfolios are created to match the risk profile of each individual investor. This is a very unscientific and error prone process. In contrast, DIs all have the same goal of searching for and capturing positive returns where ever and when ever they exist in the market. This is a universal goal that works for all investors regardless of risk tolerance level. This fundamental change sets the stage for the productization of investing discussed below.
2. From "Static" Investing to "Dynamic" Investing. - MPT portfolios are meant to be bought and held for the long-term. This makes them "static" investments that have no ability to react to market changes. In contrast, DIs embrace a buy and sell management strategy. They constantly monitor market trends in an effort to hold only ETFs that are moving up in price and selling or avoiding those that are moving down. This makes them "dynamic" investments that are far better able to cope with today's dynamic markets.
3. Introducing Time-Diversification and Market Sensitivity. Adding diversity elements to a portfolio is always a good thing. MPT portfolios are both company and asset diversified. DIs are company and asset diversified as well. But they also are "time-diversified" by being able to automatically signal when changes need to be made to profitably respond to market changes. And whereas both company and asset diversification only reduce risk, time diversification reduces risk AND enhances returns.
4. Higher Returns with Less Risk. - MPT portfolios must hold both winning and losing investments at all times to reduce risk. Because DIs are dynamic and time-diversified, they are designed to hold ONLY winning investments. This results in significantly higher returns with less risk than is possible with MPT portfolios.
4. DIs "Productize" the World of Investing. Modern Portfolio Theory shows how to combine assets to reduce risk. That's it. MPT has nothing to say about how a portfolio is to be managed. In contrast, DIT not only shows how to select ETFs to work with in order to meet a specific goal, it also provides strict rules for ongoing management. Thus, unlike MPT portfolios, DIT portfolios are comprehensive investments that can be seen as portfolio "products". This means that they can be bought "off-the-shelf" from a variety of vendors and simply held for the long term. These are active investments that are passively managed. The implications of the productization of investing are huge!
5. Ease of New DI Product Creation. Today the creation of new products such as Mutual Funds and Exchange Traded Funds is a complicated, time-consuming and expensive process. In contrast, creating new DIs easy. DIs are created by simply combining existing ETFs in the NAOI-defined Dynamic Investment structure and defining a few variables as discussed here. Companies and individuals can create an unlimited number of powerful DIs virtually overnight with little cost and effort. Read how in the Amazing Future of Investing book.
6. Reducing the Human Risk Element. A major problem with the way we invest today is that virtually all portfolio design and trade decisions are based on subjective human judgments that leave the door wide open to all manner of bad things such bad data, bad analysis, sales bias and even investing fraud and scams. The "human risk" element is a huge negative. This risk element goes away using DIT methods. In Dynamic Investments and DI portfolios all trade decisions are based on objective observations of market trends. In other words, the "market" triggers trades, not people. And history has shown that the market is a lot better predictor of future price trends than any one or group of analysts/advisors.
7. Automatic Changes in Asset Allocation. As mentioned above, in the MPT world of investing portfolio asset allocation is determined by the very ambiguous concept of an investor's risk tolerance. And then the goal is to simply maintain this allocation for the long term. DIT-based portfolios have the built-in intelligence to automatically change their asset allocation based on current market trends. Thus, using DIT methods, there is no need go through the almost impossible process of trying to determine an an up-front allocation that will work for the long-term.
8. The Introduction of Dynamic Portfolios. Single Dynamic Investments have many of the characteristics of today's multi-investment portfolios. They are asset, company and time diversified which gives them the risk reduction elements needed to qualify as a portfolio. In fact one DI can be a person's total portfolio. But DIs can also be combined to meet specific goals. Such Dynamic Portfolios take the world of product development to a whole new level. They are essentially portfolios of portfolios. And the possibilities that are opened by this fact are astounding. Read more at this link.
9. Customization at a Different Level. DIT creates Dynamic Investments that have a universal goal of maximum returns with minimum risk as discussed above in point one. They don't care about an investor's risk tolerance level. In the DIT world customization is used to meet specific goals, one of which can be lower risk. But this is not done at the DI creation level. Rather it is done at the Dynamic Portfolio level by deciding which DI portfolio building blocks to combine. This is a far easier and more effective way to meet the unique needs of an investor than trying to determine their risk tolerance level.
10. The Introduction of a Portfolio Benchmark Standard. Because MPT portfolios are customized creations for each investor, there is no way to compare them to determine how well they work and/or the competency of the portfolio designer. Today there is no "benchmark" that could give us this information. Well, that's about to change. The simplest Dynamic Investment rotates only between holding a total Stock ETF and a total Bond ETF based on market trends. This is called the NAOI Core DI. It is so simple and so easy implement and manage that any MPT portfolio that produces lower returns or higher risk must be seen as an inferior investment. Thus, the NAOI Core DI can be used as a standard benchmark against which the quality of all MPT portfolios can be measured. As you will see on the Home Page of this site the NAOI Core DI earned +26.7% per year for the decade from the start of 2008 to the end of 2017! When investors compare their MPT performance for the same period against this Benchmark they will have to wonder - "why not just buy and hold the NAOI Core DI?". And advisors will need to answer the question. This is a HUGE development in the world of investing. Read about it in the
11. Built-In Wealth Protection. Ten changes is a nice round number and pleasing to the eye. But, even though this is intended to be a partial list I couldn't stop without including this Point 11. MPT portfolios typically have no automated protection from major market crashes such as the one we saw in 2008. As a result they are vulnerable a major loss in value in short periods of time. In contrast, Each Dynamic Investment has a built-in Trailing Stop Loss order that automatically sells the ETF held if it drops by a certain amount while held. The ETF held will then be replaced at the next Review Period as described on this page. Thus any one DI or a group of DIs in a Dynamic Portfolio are at all times protected from a significant drop in value.
A New Era of Investing Is Dawning
The above listed advances to the world of investing, and others discussed in the Amazing Future of Investing book, will usher in a new era of investing that is superior in every way to the MPT-based investing environment that investors are forced to struggle with today.
Investors who read the Book can enter this better world of investing and begin profiting from it immediately. Financial organizations that read the Book can begin preparing for it immediately and by doing so gain a massive competitive advantage as the world of investing evolves.