MPT and DIT methods can work together!

MPT and DIT methods can work together!

Fundamental change of the nature discussed on this site comes neither easily or quickly to the rather staid world of investing. The NAOI believes that Dynamic Investments (DIs) will dominate the future of investing but it will not happen overnight. Therefore a plan is needed to transition to the future of investing smoothly and efficiently without disrupting current MPT-based revenue flows. The NAOI has created just such a plan using what we call MPT/DIT Hybrid Portfolios that are discussed on this page.

Introducing Hybrid Portfolios

An MPT/DIT Hybrid Portfolio simply uses the MPT asset-allocation portfolio structure with one "asset" being a Dynamic Investment as illustrated in the diagram just below. You can see that a portion of the total portfolio looks exactly like a traditional MPT portfolio that most investors hold today. Another portion is a DI as discussed on this site.

 
 MPT / DIT Hybrid portfolio configuration as discussed in    the amazing future of investing    book

MPT / DIT Hybrid portfolio configuration as discussed in the amazing future of investing book

 

We also call this a "market-biased" portfolio. You can see that when stocks are moving up this portfolio will have a 75% allocation to stocks and a 25% allocation to bonds. When bonds are moving up it will hold 75% bonds and 25% stocks! This is an amazing portfolio style that produces superior returns with minimal risk.

This type of portfolio can easily be created today by an advisor or an individual who has studied Dynamic Investments in The Amazing Future of Investing book. And the percentage allocation to the DI is at the user discretion. Many NAOI students prefer to start with this type of portfolio with perhaps a 20% allocation to the DI and then increase this allocation as they experience its superior performance.

Hybrid Portfolio Performance

Below is a performance chart that shows the performance of a generic MPT portfolio with a 50% allocation to Stocks and a 50% allocation to Bonds, the performance of the NAOI Primary DI that rotates between owning a Stock or a Bond ETF and on the bottom row the performance of a Hybrid Portfolio with a 50% allocation to a Hybrid portfolios with a 50% allocation the MPT portfolio shown in the top data row a 50% allocation to the Dynamic Investment in the second data row. 

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You can see that the Hybrid Portfolio provides significantly higher returns than the traditional MPT portfolio (with lower risk) by including a Dynamic Investment as one component.

A Transition Strategy

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Using a Hybrid Portfolio, individuals and/or portfolio designers can control the rate of transition from the current, static MPT-based world of investing to the future, DIT-based world of investing.

This can be done by simply increasing the allocation of portfolio money in the MPT format to the Dynamic Investment. The transition can be made as slow or as fast as desired.

The following table shows one transition strategy that progressively increases the allocation to the DI portfolio component (shaded in green) while decreasing the allocation to the two elements of the MPT Portfolio (shaded in red). The data illustrates why portfolio designers should seriously consider making the transition to DIT sooner rather than later. MPT-only portfolios simply leave too much money on the table.

 Transition Strategy from MPT to DIT portfolios

Transition Strategy from MPT to DIT portfolios

The NAOI Provides Total Dynamic Investing Solutions

The NAOI provides the knowledge needed to design and use Dynamic Investments. But this is not sufficient. It is also important to understand how to use DIs in a manner that ensures their staying power. Therefore we also offer strategies for using DIs in a variety of ways that does not disrupt current operations and revenue streams. Thus, the NAOI has a complete DI support division that works with organizations to integrate DIs in a manner that meets their unique needs and goals. We do this through our Consulting Services as discussed in more detail on this page.

And, of course, Dynamic and Hybrid Portfolios are discussed in greater detail in The Amazing Future of Investing book that can be purchased in the NAOI Store.