Change Is Not Optional
Extensive research and NAOI surveys of average people with money to invest show conclusively that the world of investing as it exists today does not work for the investing public. This is a world in which individuals are asked to simply trust and accept the advice of financial professionals without question, even though these advisors are also salespeople whose motives may not match those of their clients. As a result too often individuals are stuck holding mediocre performing portfolio with excessive risk and unnecessarily high expenses. But they have few other options.
Today all power rests with the financial services industry while the individual has virtually none. Such an imbalance cannot be sustained. Like water, power will flow between buyers and sellers until a balance is achieved. This will eventually happen in the world of investing.
This page presents the NAOI's vision of a better investing future, one in which the individual investor holds far more power than they do today. This power shift will force the financial services industry to pay more attention to meeting the public's wants and needs and less to meeting their sales goals and maximizing their commissions. What you read here is not a daydream or wishful thinking - it will happen. The NAOI is creating this future of investing today.
The Catalyst of Change
The financial services industry is very, very profitable today and very content with the status quo. There is no incentive for them to change the way investing works today. And the industry will not change until a catalyst is introduced that forces them to do so. Dynamic Investing Theory and Dynamic Investments are the catalysts needed. This new approach releases the public from the constraints of Modern Portfolio Theory and gives individuals the choice of using Dynamic Investments (DIs) that require far less dependence on the recommendations of financial advisors. In fact DIs are so simple to use and produce such stellar results that individuals can invest on their own if they wish and earn better returns with lower risk than an MPT portfolio can hope to provide. Dynamic Investments shift power from the "experts" to the people and the financial services industry must evolve - or die.
The Components of Change
Hopefully you have read on this site what Dynamic Investments are, how they work and the returns performance they are capable of producing. If you have, then you know that this new type of investment has the potential to change everything.
Dynamic Investments (DIs) make investing simpler, eliminate human judgment from the portfolio design / management process and provide significantly higher returns with less risk and lower expenses. As is illustrated on this site, traditional MPT portfolios cannot come close to matching the simplicity and performance of DIs. On this site you have learned that this unique investment type adjusts its holdings periodically and automatically in response to changes in market conditions without the corrosive effects of human judgments. DIs make changes based on what the market is currently doing, not based on "expert" guesses on what the market will do in the future. And this makes all of the difference.
You have also read on this site that DIs have as their goal to search for, identify and capture the positive returns of market areas that are trending up while avoiding areas that are trending down. In other words, their goal is to hold ONLY winning investments. This is in stark contrast to MPT portfolios that have as their goal matching the risk profile of each of millions of investors. They do so by using asset allocation techniques that mandate that a portfolio hold both winning AND losing investments at all times and are not sensitive to market changes.
Since Dynamic Investments have a universal goal of maximizing returns and minimizing risk there is no longer a need to customize portfolios for each individual investor. Thus, the massively error-prone and sales-bias prone customization process required by MPT portfolio design is eliminated. This leads to a startling conclusion - the use of DIs enables the "productization" of investing. And this is a game changer extraordinaire.
The Productization of Investing
With a universal goal that works for everyone regardless of age, risk tolerance or financial profile, Dynamic Investments work for everyone. All of a sudden in the world of Dynamic Investments, portfolio become standardized "products" instead of customized creations. Investment productization is the Holy Grail of investing that experts have been searching for for decades. They haven't found it. The NAOI has.
Following is an example of a Dynamic Investment Product Menu that a user of the future will use to simply select from a series of standardized products and services. Gone will be the excruciating process of an advisor trying to determine the user's risk profile. Gone also will be the potential for biased or inappropriate investment recommendations by an advisor / salesperson. Gone will be the reliance on human judgment related to what the market will do in the future. As a result, the doors to investor abuse, sales-bias, bad judgment and fraud will close. The world of investing suddenly becomes a much safer place for the investing public.
Standardized Dynamic Investment "Product" Menu Example
Some advisors may think that there are not enough fees here to provide them with the income they need to maintain their standard of living. But a product line like shown above will bring a significant number of people back into the market that "gave up" in 2008 and are just waiting for products with higher returns and less risk like those shown in the menu. In addition, by offering standardized products an advisor needs to spend less time with each client. This is time that can be better spent on providing a broader range of services as indicated on the lower portion of the menu and as discussed below on this page.
The Newly Empowered Investor
Changes to the world of investing will start with changes in the individual investor. While the investing client of today is severely under-educated in how to invest, the investing client of the future will be much smarter and unwilling to simply accept whatever is recommended to them by an advisor without question.
Will this be a result of academia starting to take investing seriously and providing more education? No. It will result from the world of investing becoming exponentially simpler through the use of Dynamic Investment Theory and Dynamic investments.
As has been emphasized time and again on this site, investing does not need to be as complicated as the financial industry today would have us believe. Dynamic Investments are so simple to implement and manage that people of all investing experience levels will be able to understand and use them immediately upon completion of the NAOI book "The Amazing Future of Investing" book. They will read also learn in this book that Dynamic Investments produce returns far higher than the MPT portfolios they are given by advisors today without higher risk. As a result, the client of the future will be far more demanding than they are today.
Since DIs are standardized "products' as discussed just above, the investor of the future will also have the power bestowed on him or her by the forces of competition. Unlike today's world of investing in which because they are customized for each individual, portfolios cannot be easily compared - in the future comparisons of standardized DI products will be simple. And only advisors and organizations that offer the best with the lowest prices will survive. Add to this the fact that DIs can easily be implemented and managed by an investor on their own using an online broker - and advisors of the future will need to "fight" for client business based on facts, not on marketing pitches.
The "power" conferred on the individual investor of the future will force the financial services industry to change to meet their demands.
The New Role of Advisors
Significant changes in how investing works today does not need to be a bad thing for financial advisors. Certainly many business plans today are based on clients being passive and accepting of whatever an advisor recommends. But as explained on this page, such business plans have a short life-span. When clients start to compare, question and shop for the best advice new business plans will need to be developed for many organizations to survive.
Those that offer Dynamic Investment menus such as the one shown above will profit less from selling commission rich investments but will regain profits from the fact that more individuals will enter, or re-enter, the much more profitable and user friendly investing environment spawned by Dynamic Investment Theory.
Plus, the use of DIs frees up an extraordinary amount of time now used to customized portfolios for each individual client and sorting through hundreds of investments to populate it This time can be better used to provide other, more valuable services. The NAOI sees the advisor of the future providing the following value to clients:
- Education on the use of Dynamic Investments
- Managing the trades dictated by the DIT approach
- Offering more financial planning education related to such topics as savings, budgeting, taxes, retirement plans, trusts, social security, etc.
- Bringing together a comprehensive set of people and resources to go deeper into any of these areas should the need arise
The NAOI sees the future financial advisor as being a total financial solutions provider and a one stop shop for a client's financial needs. Clients will gladly pay for such services in which they can clearly see the value added, unlike the expenses they pay today for such things as "fund management fees" for which they so no concrete value whatsoever. No study has shown that increased fund expenses correlate positively with increased fund performance.
The New 401k Industry
As with other areas of investing, the future world of 401(k) Plans will bear little resemblance to the one the public faces today. From NAOI surveys of 401k participants we know that they are not happy with their plans. Many, if not most, don't know what they own or why. They have been told to simply "diversify" and "buy and hold". As a result they have no idea of how or when to make changes in response to market conditions. And each person we contacted is worried that another crash like they experience in 2008 can wipe out their savings virtually overnight. In addition, far too many own Target Date funds that have proven to be a disastrous "default" investment that blindly increases allocation to bonds as retirement nears. This type of market insensitive investing is so bad that almost all Target Date ETFs have been withdrawn from the market.
In the Dynamic Investing world of the future, Plan participants can select a simple Dynamic Investment that automatically changes its holding(s) based on periodic market reviews. Since these Plans are tax deferred there is no penalty for frequent trading. And never again will a Plan participant suffer a "crash" of their savings. Dynamic Investments get out of downtrends quickly before they do significant damage. In fact, the simplest NAOI designed DI earned +33% during the stock market crash of 2008 as it switched early from stocks to totally invested in bonds. When the stock market started to recover in 2009, the DI switched back to stocks and took full advantage of one of the longest bull markets in history.
The New Portfolio Managers and Investment Strategists
Whether planning a product line for a financial organization or recommending a strategy for a major client's investing activities in the world of Dynamic Investments you job just got easier. As you have read on this site, DIs give you amazingly powerful tools to design portfolios that produce far higher returns with far lower risk than the tools you have to work with today.
Dynamic Investments enable you to insert the element of "time-diversification" into your portfolio designs, a factor that is completely ignored using traditional methods. The thing about time-diversification and what makes it unique, is that it not only reduced risk but it also increases returns. I demonstrated this in the Dynamic Investing area of this site. This means that higher returns do NOT come only at the expense of higher risk - and Modern Portfolio Theory is blown out of the water!
The New Investment Developers
As the NAOI began its search for a new approach to investing to replace MPT after the crash of 2008, we were stunned at the state of investing research in the industry today. It seemed to us that such research was random at best and useless at worst. Time, money and energy was focused on such things as developing ever more exotic funds and ETFs with names such as "Japanese Currency Hedge ETF" and "Dow Jones-UBS Livestock Subindex Total Return". Who buys these things? Not the public. So why is valuable research time spent on ETFs that have microscopic volumes? And then we found significant time and energy on such nonsense as "robo-advisors" that do little other than automatic obsolete MPT methods.
In the new world of Dynamic Investments, R&D resources can be directed at developing ever new and better Dynamic Investments. Such efforts can result in immensely valuable new investments that the public will devour in mass quantities. And the research effort need not be expensive. You learned in the Dynamic Investment area of this site that there are only four variables needed to create them. And once a superior DI is created it can be a valuable asset on the developing company's balance sheet as well as the source of significant income streams from sales to the public and licenses to the financial industry. Another advantage of DI R&D is that their exists a standardized "rule book" in the form of Dynamic Investment Theory that enables all developers to pull in the same direction.
The New Discount Brokers
Dynamic Investments are right in the "wheel-house" of discount brokers. As you have learned on this site DI's are so simple that individuals of all experience levels can implement and manage them on their own without the aid of a financial advisor. All they need is the education to do so and the vehicle to place order and make trades. DIs will empower millions of investors to effectively use discount brokers. But discount brokers will need to add just a few services to their offerings to take advantage of this influx of clients. They will need to offer, in conjunction with the NAOI, Dynamic Investment Education, as well as an automated DI management system that simply and automatically makes trades and places stop loss orders as dictated by a DI's design.
The Great Investing "Power Shift" Is Coming
Dynamic Investments will shift massive amounts of power to the investing public as explained above. A consumer based industry, such as retail investing, cannot survive with a customer base that is under-educated and dependent on the seller. It is an anomaly that it has survived in its current form for so long. The empowerment of the general investing public is necessary for the investing industry to evolve and thus survive for the long term.
Yet we must understand that current investing methods are entrenched today. They serve as a basis for very profitable financial corporation business plans. These methods will no change until a significant catalyst forces them to. Well, that catalyst has arrived in the form of NAOI Dynamic Investments that give the public choice.
Because standard Dynamic Investments provide superior performance the public will demand them over MPT customized portfolios. And because Dynamic Investments are standardized products multiple financial organizations will offer the same products and the cleansing power of direct competition enters the financial market place. In addition, because Dynamic Investments are so simple to implement and manage, individuals have the very real option of doing so on their own using an online broker and bypassing financial advisors altogether. These choices spawned by the introduction of Dynamic Investments gives the public the power of choice and in this manner power shifts from the financial services industry to the people.
Financial organizations who resist such a change will quickly lose market share to those that embrace it. And the forces of natural selection will favor those that are willing to adapt. We will have a healthy investing industry when the seller truly meet the needs of the buyers. DIs ensure that it happens.
NAOI Transition Resources
The NAOI offers courses, classes and consulting that can enable financial organizations to evolve to the future of investing effectively, efficiently and with a minimum of disruption to current operations. Refer to the NAOI Products section of this site for more information on NAOI Seminars, Classes and Customized Consulting.