Having watched the performance of the NAOI portfolio and the portfolios of our student testers, I am quite confident that holding only one or more Dynamic Investments in a portfolio is a smart decision. But being a realist, I know that this is not going to happen. Change in the financial services industry does not come easy. It takes time. And that is fine with the NAOI. We have developed a smooth transition path from today's MPT portfolios to the DIT portfolios of the future. This is a path that is simple to implement and can happen with minimal disruption to current revenue streams.
On this page I show examples of portfolios containing only Dynamic Investments followed by configurations that contain both DIs and traditional investments in an MPT asset allocation configuration. I call this second type a DIT/MPT "Hybrid" portfolio that most individuals and advisors should consider using immediately. You will see why as you read this page.
Dynamic Investment Portfolios
Simply buying and holding a single Dynamic Investment is a very smart investing decision. This observation is supported by the performance table shown on the Home Page of this site. But Dynamic Investment Theory (DIT) provides a blueprint for creating a variety of Dynamic Investment portfolios - some simple, others more involved. Below on this page are illustrated just a few of many the Dynamic Investment-based Products that can be created. Along with each example is shown backtested performance for the past decade from the start of 2007 to the end of 2016. You will see that each DI-based Product is a far superior investment than ANY MPT portfolio in existence today!
Any portfolio creator or investing solution provider will be able to gain a massive competitive advantage by working with the NAOI to exploit the potential of Dynamic Investments in an optimal manner and without disrupting existing revenue streams. NAOI consulting services are discussed here.
Standalone Individual Dynamic Investments
A single Dynamic Investment can be the only investment that an investor owns. While a standalone investment product it can also be seen as a complete portfolio. Why? Because it provides all of the standard diversification elements of an MPT portfolio plus one other. These risk reduction factors include Company Diversification via the use of ETFs, Asset Diversification with the placement of multiple ETFs in the DI's Dynamic ETF Pool (DEP) and another type of diversification that MPT portfolios don't use - Time Diversification - that results from a DI changing the ETF it holds based on a periodic sampling of market trends. And whereas both Company and Asset Diversification both reduce risk AND reduce returns, Time-Diversification both reduces risk AND enhances returns by making this new investment type sensitive to market changes in order to buy ONLY into areas of the market that are moving up. Time Diversification is the element that enables DIs to provide returns that MPT portfolios cannot touch and with less risk.
The following illustration shows the internals of a single DI. They are discussed in more detail here.
- Example Single Dynamic Investment: The NAOI "Basic" Dynamic Investment, as discussed on the Home Page, with only Stock and Bond ETFs in its DEP and uisng quarterly reviews.
- Performance: Average Annual Return for the period 2007 to 2016: +30.6% per year with a Sharpe Ratio of 1.18!
Dynamic Investment Portfolios
The next step up the complexity level in the DIT world is a portfolio of Dynamic Investments. A DI Portfolio contains either 2 or 3 individual DIs. Some investors are not comfortable allocating all of their investment money to one ETF at a time - which is what a single DI holds. By working with three DIs, for example, a Dynamic Portfolio can hold up to three ETFs at one time if each selects a different ETF from its DEP at a review period. Here is an illustration of a DI Portfolio with three DIs each holding three ETF candidates in its DEP.
The bottom component of this chart shows that this DI Portfolio can hold up to three different ETFs at a time, each selected from a different DI as the one trending up most strongly at time of purchase. Percent allocations to each ETF can be equal for sake of simplicity or the portfolio designer can decide on allocations to each as shown in the diagram.
For example this type of portfolio can hold a Stock Dynamic Investment that sorts through various stock "types" to select the area of the stock market moving up most strongly at review time. And it can also hold a Bond DI along with an Emerging Market DI - each selecting only one ETF from those asset types. Note that each DI will have what we call an "escape" ETF that is selected if the asset type targeted by the DI is going down as a whole - e.g. a Bond ETF in the Stock DI.
Of course there are an unlimited number of DI portfolios that can be constructed for any investing goal. And each will provide returns with low risk that MPT portfolios cannot touch. The NAOI can show portfolio designers the benefits of, and the process for constructing, DI portfolios via our training courses.
NAOI DIT / MPT Hybrid Portfolios
The next two product configurations show how MPT and DIT can co-exits and how the transition from MPT to DIT can be handled easily and seamlessly.
Using DIs as an MPT Portfolio Returns Booster
An NAOI Hybrid Portfolio is essentially an MPT, asset-allocation portfolio with one or more asset being a Dynamic Investment. A DI can be added to an MPT-based portfolio just as any other asset type. But while the traditional investment types in the portfolio will remain "static" the DI component will be dynamic - periodically changing to take advantage of market movements, and thus "boosting" entire portfolio returns. In this manner the DI functions as a "Returns Booster" to an otherwise mediocre, static portfolio.
This type of portfolio also enables an organization can gradually transition from MPT portfolios to Dynamic Investments and DI portfolios by gradually increasing the allocation to the DI component. Here is an example of an NAOI DIT / MPT Hybrid Portfolio.
- Example Hybrid Portfolio: 20% NAOI "Basic" DI, 40% Stock ETF, 40% Bond ETF
- Performance: Average Annual Return for the period 2007 to 2016: 20.4% per year!
Dynamic Market-Biased Portfolios
Chapter 9 of The Dynamic Investment Bible discusses and illustrates an exciting new portfolio design concept that the NAOI calls a Market-Biased Portfolio. This powerful portfolio type holds two standalone ETFs with equal allocations to each e.g. 25% allocation to a Stock ETF and 25% allocation to a Bond ETF. These ETFs and their allocations do not change. But also in the portfolio is the NAOI Basic Dynamic Investment that rotates between a Stock and Bond ETF based on market trends.
Thus a Market Biased Portfolio will hold an allocation of 75% Stocks / 25% Bonds when stocks are trending up, and 75% Bonds / 25% Stocks when stocks are trending down and typically bonds are trending up. This shift in market bias is signaled automatically by the DI's internal intelligence - not based on the vagaries of human judgment. Human judgment enters the equation only in selecting the optimal ETFs for stocks and bonds as well as the optimal Dynamic Investment and then setting allocations.
Here is an example of an NAOI Market Biased Portfolio configuration:
- Example Hybrid Portfolio: 25% Static Stock ETF, 25% Static Bond ETF, 50% Basic DI (rotates between stock ETF and bond ETF)
- Performance: Average Annual Return for the period 2007 to 2016: 16.5% per year with minimal risk
Perfect for Retirement Plans!
Market Biased Portfolios are perfect investments for 401(k) and other retirement plans as discussed in more detail here. They are incredibly simple to implement and management is automatic. They are extremely safe to own - yet they provide higher returns than any MPT portfolio in existence today. And there is no tax penalty for the trades signaled.
Dynamic Investments - The Portfolio Building Blocks of the Future!
Dynamic Investments will be the basic portfolio building block of the future; not ETFs and not mutual funds. DIs are far more powerful than any investment type used to create portfolios today. As a result, a new type of value-added supplier will arise and play a vital role in the future of investing. The NAOI calls them Dynamic Investment Designers.
Dynamic Investment Designers (DIDs) will be trained by the NAOI to combine existing ETFs, using DIT methods, in the DEPs of new Dynamic Investments. They will then provide DI-based Portfolio Building Blocks to portfolio designers, creators, managers and strategists. Dynamic Investment Designers are discussed on the "DI Designers" page of this site.
One Theory, Many Manifestations
The standalone DI is the "anchor" of a massive new area of investment development that uses them in many configurations. Presented above are just a few Dynamic Investment configurations that are possible. You and/or your organization will learn the art and science of DI Product Design in an NAOI training class as discussed here or for more customized training via an NAOI consulting contract as discussed here.
In addition, the NAOI currently has a "catalog" of ready-to-use DIs and DI portfolios that portfolio designers, advisors and investing solution providers can use today. Each has been thoroughly back-tested and shown to provide amazing performance in ANY economic condition. Contact us to discuss any aspect of what is presented on this page.