Executive Overview

The world of investing today is stuck in the past. It still dictates that investment portfolios be designed using Modern Portfolio Theory (MPT), a methodology introduced in the 1950s. While markets have evolved significantly since then, MPT has barely changed at all and it is no longer optimal in today’s dynamic markets.

The purpose of this Research Report is to introduce an alternative to MPT called Dynamic Investment Theory (DIT). Developed by the National Association of Online Investors (NAOI) this updated approach to investing more effectively copes with modern markets and better meets the wants/needs of today’s investors. You will learn how it was developed and how it works in the pages of this Report.

Introductions

My name is Leland Hevner. I am the President of the NAOI and the lead author of this seminal Research Report. Founded in 1997, the NAOI is a unique investor-education, investment-research and financial consulting organization. The association has two goals. First, we work with individuals to enable them to invest with confidence, with success and without fear via objective education, investment innovation and the use of online resources. Thousands of individuals have taken our online investing courses, read our books and/or attended our college classes. Second, we work with financial organizations to advise them on how to offer superior investment products and investing solutions that better meet the wants and needs of the investing public.

Why Investing Change Is Needed

As we teach our students, they teach us and we know that far too many people who need investing income are leaving, or not entering, the market. Why? They are afraid of owning the buy-and-hold, MPT-based portfolios offered to them by advisors today. People view the risks of substantial losses when markets correct or crash as simply being too high. Many are opting to buy annuities instead of equities.

The Change Needed: Introducing Dynamic Investments

To ease this fear the NAOI initiated an R&D project to find an alternative to, or supplement for, the MPT approach to portfolio design. Following a multi-year effort, using extensive input from the investing public, we met this goal with the creation of Dynamic Investment Theory (DIT) and an innovative investment type it defines called Dynamic Investments (DIs).

In this Report you will learn that DIs work with a designer-selected group of from 2-5 existing ETFs, each of which thrives in different market conditions. These are the DI’s “purchase candidates”. On a periodic basis (e.g. quarterly) the DI automatically samples each ETF in the group and purchases, or retains, the one having the strongest upward price trend. It holds this ETF until the next review when the selection process is repeated.

By holding only ETFs moving up in price at time of purchase and protecting their value using Trailing Stop Loss orders, extensive testing show that DIs consistently and significantly outperform any standalone ETF or mutual fund being offered today – in both Bear and Bull markets – with no active management required.

For example, the simplest DI possible designed by the NAOI that rotates only between a Total Stock Market ETF and a Government Bond ETF based on a quarterly sampling of the price trends of each earned an average annual return of 15%+ during the volatile period from 2008-2022, This while a generic 60/40 MPT-based portfolio earned an average annual return of a little over 8%.

Introducing Dynamic Portfolios

DIs can function as a total portfolio. Or they can be used as building blocks in traditional MPT portfolios where they both increase returns and lower risk by using FIVE diversification types. Thus, designers and advisors can easily enhance the performance of the MPT-based portfolios they are currently recommending by simply adding DIs. We call DI-enhanced MPT portfolios “Dynamic Portfolios” or “DPorts” and both our students and investing professionals who have peer-reviewed DPorts believe that they will be the investment-type-of-choice in the very near future.

Demand for DIs and DPorts Is Growing Fast

The NAOI has been teaching the use of DIs throughout our extensive education network for 3+ years. Students tell us that this is the investment type that will finally give them the returns they want with the strong protections from loss that they need.And they will search for advisors that offer them.

Investing Professionals Are Beginning to See the Exceptional Benefits of Offering DIs

Investing professionals who have peer-reviewed DIs saw that by monetizing combinations of existing ETFs, DIs significantly expand the size and value of current ETF product lines without the need to create a single new ETF. This is value that is currently lying dormant in existing ETF product lines. They also tell us that they know of no simpler, quicker and less costly way for financial organizations and investment advisors to gain a significant competitive advantage in the crowded ETF marketplace today.

An Easy Transition to the Future of Investing

The NAOI understands that the DIT approach to investing described in this seminal Research Report will be ignored by many in the financial services arena. Change of this magnitude is not easily accepted by an investing world in which MPT is so firmly entrenched. But the NAOI is not advocating that MPT go away. In this Report we show how DIT and MPT methods work well together in the form of Dynamic Portfolios that hold both an MPT and a DIT Segment.

As time passes, however, and portfolio designers see that the DIT Segment consistently produces higher returns with lower risk than the MPT Segment, they will begin allocating more money to the DIT Segment. In this manner the use of DIs will grow and the world of investing will gradually evolve to better meet the challenges of modern markets and the goals of today’s investors without major disruption to how investing works today.

Working with the NAOI

As a reader of this Report you will be able to design, create and take full advantage of the unique benefits enabled by DIs and DPorts immediately upon finishing the last Section. However, to create optimal DIs / DPorts and to successfully market them to the public it is highly recommended that you consider working with the NAOI. The final Section of the Report shows the types of cooperative efforts that are available.