A Major Change Is Coming in the Portfolio Design Process!!
With the introduction of Dynamic Investment Theory and Dynamic Investments the design of high return / low risk portfolios just became a lot simpler. The new basic portfolio building block will not be ETFs, mutual funds or individual stocks/bonds. The new basic portfolio building block will be Dynamic Investments as described here.
This page discusses how the portfolio design process will work in the DI-based future of investing and how a new player in the financial market will arise in the form of the Dynamic Investment Designer or DID.
The Evolution of Portfolio Design!
In the future,powerful portfolios will be easily created via the insertion of an additional step in the portfolio design process. This step will one in which ETFs are combined into Dynamic Investments that will then become the basic building blocks for portfolio creators. Let's take a look at the differences between how portfolios are designed today and how they will be designed in the future.
Portfolio Design Today
The illustration below shows how ETF-based portfolios are designed today. This process is complex and full of human subjective judgments. And the end product is a "static", MPT-based portfolio that is neither capable of enabling the holder to take full advantage of market uptrends nor to protect them from market downtrends and wealth destruction.
Let's look at how this process works. Today's portfolio creator considers for inclusion in the portfolio a full spectrum of ETFs from various vendors and decides which to select and with what allocations of money. These decisions are based on market analysis and the risk tolerance of the portfolio holder (shown as red boxes in the diagram). Once designed, the portfolio is meant to be held for the long term.
Key to the performance of such MPT portfolios are the ability of analysts to correctly assess market conditions and predict future market movements. The portfolio creator must also correctly assess the risk level of the client and determine asset allocations to match it. At the NAOI we call these analysis elements of process "human judgment risk factors" and these factors are a major reason why MPT portfolios in general perform very poorly in today's volatile markets. Minimizing, or removing, human judgment risk factors was one of the major goals of the NAOI when creating Dynamic Investment Theory (DIT) and defining the new portfolio design process discussed next.
Portfolio Design in the DIT-Based Future of Investing
In the new, improved portfolio design flow illustrated below a new "player" is inserted in the process in the form of the Dynamic Investment Designer (DID). The role of DIDs is to transform "raw" ETFs from the developer into powerful portfolio building blocks as discussed below the chart.
In this diagram the new process elements are shown as green boxes. You can see that Dynamic Investment Designers take ETFs as their input and output powerful Dynamic Investments which are then used as input to the portfolio creator to work with as basic portfolio building blocks.
The use of DIs to build portfolios instead of "raw" ETFs makes the job of the portfolio designer/creator much simpler and the portfolios created much more powerful. As is explained on this site, DIs are combinations of ETFs that change the ETF they hold based on market dynamics. They have the built-in intelligence to buy only ETFs that are trending up and to avoid those that are trending down. As such they are an active investment that is passively managed. And each DI will target a specific goal as defined by the ETFs that the DID has placed in the DI's Dynamic ETF Pool as illustrated at this link.
You can see that in this portfolio design process the human risk elements (the red boxes in the diagram above) have been eliminated. When using DIs, the "market" makes all purchase and trade decisions, not human analysts. And history has shown that the market is a far better predictor of future price movements than any one or group of human analysts. The self-management element of this process is illustrated by the two green boxes and arrows shown at the right of the diagram.
Benefits of the New Portfolio Design Process
Here is a brief summary of the benefits of using this new portfolio design process:
- Higher Performing Portfolios. As is shown throughout this site, DIT portfolios produce far higher returns with less risk than any MPT portfolio in existence. An example is shown on the home page of this site where the same two ETFs are used in an MPT portfolio and a DIT portfolio. During the 10 years from 2007 to 2016 the MPT portfolio averaged +5.0% return per year while DIT portfolio, for the same period, earned over +30% per year and with less risk! It is simply no contest which is the superior portfolio design.
- Easier to Design. This new design and creation process is far easier than the one used today to create MPT portfolios. A major reason for this is that the human judgment factors / risk elements are virtually eliminated. Thus the designer of the future is not subjected to bad data, incorrect analysis or the need to essentially "guess" at what the market will do in the future. Remember, each DI is signaling all purchases and trades based on objective sampling of market trends- not the subjective recommendations of fallible humans.
- Allocation Decisions Less Crucial. While the designer will still need to assign allocations of money to each DI building block in the portfolio this is not the life-or-death decision that it is in MPT portfolios. A well designed DI portfolio will automatically adjust allocations to maximize performance in any economic condition. An MPT just "sits there and takes the blows" when markets melt down.
- No Ongoing Human Management Needed. MPT portfolios have no self-management capabilities. Once designed they are meant to be held for the long term without change except by the relatively random intervention of a market analyst. DIT portfolios manage themselves by periodically sampling market trends and signaling changes the ETFs they hold to take advantage of any and all market changes.
- The Use and Sales of ETFs Will Skyrocket. Since Dynamic Investments are built by combining ETFs, the acceptance of this new investment type will cause ETF sales to soar. This topic is discussed in detail in the "ETFs Reborn" section of this site.
In a DI-based world of investing portfolio designers will still play the important role of assessing the investor's needs and creating a portfolio to match it. But with DIs as the basic portfolio building block this role does not need to include costly and often erroneous market analysis. All ongoing management is taken care of by the use of DI building blocks. Human intervention is rarely, if ever, needed!
A Full Range of DI Building Blocks
Dynamic Investment Designers will be organizations that create powerful portfolio building blocks by combining existing ETFs into far more powerful Dynamic Investments. They will be trained to do so by the NAOI as discussed below on this page.
There are virtually an unlimited number of DIs that can be created in a wide variety of categories. On top of that, DIs can be combined in a virtually unlimited number of ways to create Dynamic Portfolios to meet any number of client goals. All of which will be "products" that DIDs can list in a catalog and present to portfolio designers / creators to select for their portfolio products. Examples of various DI and DI portfolio configurations are discussed on the DI Products page.
Who Can Be Dynamic Investment Designers?
Virtually any organization that has undergone Dynamic Investment training conducted by the NAOI, as discussed at the bottom of this page, can become a very profitable Dynamic Investment Designer (DID). Remember, DIs are created by combining existing ETFs and this is far easier and less costly than creating new ETFs. So the list of DID candidates is extensive. Here are just a few examples:
- ETF Developers: Of course the most obvious candidates are organizations who create ETFs. They can set up a corporate division or simply a work group to combine the ETFs they produce into a full product line of Dynamic Investments. By doing so they uncover hidden value that exists in their ETF product line but is not now being exploited. Also by creating DIs, ETF developers open markets for sales including the retail investor market. Combined with NAOI education, see here, simple DIs can easily be implemented and managed by individual investors using an online broker. This is a massive market that single, "raw" ETFs cannot reach.
- Portfolio Designers and Creators. Any organization that currently uses or sells ETFs will benefit from becoming a DID, again, with NAOI training and resources. An advantage for these ETF users is that they can create DIs that contain ETFs from multiple ETF vendors. And DIs created by any of these entities can be sold as consumer products to the market, both professional and retail, thus generating revenue streams that do not currently exist.
- DID Startup Companies. With the introduction of NAOI Dynamic Investments a rare opportunity opens in the relatively staid financial services industry. This is the opportunity to start a new organization that is solely focused on designing, creating, testing and productizing a powerful new investment type that will dominate the future of investing. And, again, no new ETFs need to be created. DIs are formed by combining existing ETFs. And DIs created by this type of organization may be patentable such that the very best can be licensed to other financial vendors. The potential here is enormous with very little startup capital. The NAOI is a Dynamic Investment Designer with a full catalog of DIs that can be licensed.
The NAOI has a complete startup package that shows what is needed to start a very profitable DID company, or division of an existing company, in this very lucrative area of the financial service market. Contact us to learn more.
The New "Dynamic Investment" Market Environment
The diagram below shows the new structure and dynamics of the financial world with the introduction of Dynamic Investment Theory, Dynamic Investments and Dynamic Investment Designers. The black letters and lines are what exist today. The red letters and lines are what will exist with the use of Dynamic Investments.
This is a new, refreshing environment not constrained by Modern Portfolio Theory methods that are the standard of portfolio design today. In this brave new world, portfolios are easier to create an perform better than any MPT portfolio in existence today. New entities such as Dynamic Investment Designers will from to create new, more powerful investment types. New value is released from existing ETF product lines and new markets open to developers which are closed to them today. This is a diagram of the future of investing.
NAOI Training and Consulting
While Dynamic Investment Theory and Dynamic Investments are new to the market, they are not new to the NAOI. We have been working to develop both since 2008 when the market crashed showed to us very clearly that MPT methods and portfolios no longer worked in modern markets. Eight plus years of research, development and field testing have shown us that how to create optimal Dynamic Investments and Portfolios. And while the process may look simple (which was one of our goals) it is not to those who are not trained on design techniques. Starting from scratch to duplicate what the NAOI has developed in this area would take years and hundreds of thousands of dollars - if it were possible at all.
That's why any financial organization that wants to take full advantage this new, and far superior approach to investing will be well served by considering an NAOI consulting arrangement. Not only have we developed a cost efficient and streamlined approach for developing optimal Dynamic Investments, we have also created a comprehensive support system that will ensure that this new approach is applied correctly and has staying power. Among the resources we offer to organizations are: DIT education resources, DIT marketing and sales resources, DI development and testing tools and more.
Speed is of the essence in gaining an advantage in the DI-based future of investing. Your first step to gaining this advantage is to contact us and schedule a consulting arrangement as soon as possible. Contact information is found here.
The introduction of Dynamic Investment Theory methods and next-generation Dynamic Investment types changes the way we invest at a fundamental level. And with this change comes a host of new opportunities for early adopters of the new ideas and methods presented on this page. The NAOI knows via extensive testing that when the public learns about Dynamic Investments and Dynamic Portfolios, they will demand them. Organizations that meet this demand will thrive with a massive competitive edge. Those that ignore this inevitable evolution of investing will die. That's just how evolution works.
Contact the NAOI to prepare for the future of investing today.