The diagram below shows how the introduction of Dynamic Investments enables a “Product-Line of the Future” that gives investment advisors, investment product creators and portfolio designers the tools needed to create portfolios that are far superior to those being offered to the public today.

In the yellow boxes are the investment types in use today. In the green boxes are new, DI-based products, introduced for the first time in the NAOI Research Report entitled “A Blueprint for the Future of Investing”.

Descriptions of each product-line component and how they can be combined to create high-performance portfolios are presented below the diagram with reference to the circled numbers.

 
 

Following is a brief description of the investment types in the NAOI-designed product-line of the future. Each investment type discussed below is related to a circled number in the above diagram.

Investment Types Currently In Use

First, let’s review the investments that are being used by portfolio designers today. They are listed below along with the number and type of diversification elements they provide.

Investments 1-2: Exchange Traded Funds (ETFs) and Mutual Funds.

These are the basic equity types used most frequently to build portfolios today. Both hold “baskets” of equities. The main difference between these investment types is that ETFs trade like stocks while Mutual Funds trade only at the end of a trading day. Also ETF management fees are typically lower than those of Mutual Funds.

One Diversification Element

  • By holding the Stocks and/or Bonds of multiple companies, ETFs and Mutual Funds are Company Diversified.

Investment 3: MPT-Based Portfolios

Virtually all investors today are given by their advisors portfolios created using Modern Portfolio Theory (MPT) methods. MPT portfolios are customized to match the risk tolerance of each investor via asset allocations, typically between negatively correlated asset-classes such as Stocks and Bonds. Then these portfolios are meant to be held for the long-term, in all economic conditions. Changes are made, typically on a yearly basis, only to rebalance asset allocations to match original, or changing, investor risk levels.

Two Diversification Elements

  • By holding both Stocks and Bonds at all times using ETFs and/or Mutual Funds, MPT portfolios are both Company Diversified and Asset-Class Diversified. These diversity elements reduce risk but also reduce returns.

A Problem: As discussed in Section 2 of the NAOI Research Report, a major problem with MPT portfolios is that their buy-and-hold management strategy makes them insensitive to economic and market changes. As a result, they don’t enable holders to take full advantage of the market gains that investors want or provide the strong protection from significant portfolio losses that investors need. As a result far too many people who need investing income are not participating in the market today. The new, dynamic elements of the future product line, discussed below, fix this problem

New Investment Types – Stepping out of the “MPT Box”

To evolve the world of investing to effectively cope with modern markets, we cannot move “sideways”. Simply creating new ETFs and Mutual Funds is not sufficient. Evolutionary change that moves the world of investing “forward” must come in the form of creating an alternative to, or supplement for, MPT methods for designing and managing portfolios. The NAOI has has done just that with the introduction of the new investment types discussed below.

Component 4 – Dynamic Investments (DIs)

Sections 4, 5 and 6 of the Research Report show how the NAOI is introducing to the market a new portfolio design approach called Dynamic Investment Theory (DIT) and a new investment type that DIT creates called Dynamic Investments (DIs). You will learn in Section 5 that DIs are capable of automatically changing the ETFs they hold based on a periodic sampling of market trends. By doing so, they are “market-sensitive” and capable of producing returns significantly higher than virtually any ETF, Mutual Fund or MPT portfolio in existence today.

Three Diversification Elements - Dynamic Investments take advantage of the diversification elements shown below.

  • Company Diversification by holding ETFs

  • Asset Diversification by rotating between ETFs that track multiple asset classes

  • Time-Diversification by signaling changes to the ETF that the DI holds based on a periodic review of market price trends

“Time” is a new diversification element that not only reduces risk but also enhances returns!

Component 5 - Dynamic Portfolios (DPorts)

It is not the purpose of the NAOI to replace MPT-based Portfolios with DIT-based portfolios. They work quite well together. Dynamic Investments can be used as building blocks in traditional MPT portfolios to both enhance their returns and reduce their risk. Explained in Sections 7 and 8 of the Research Report, we call these “Dynamic Portfolios” or DPorts for short.

Five Diversification Elements! DPorts take advantage of an amazing FIVE Diversification elements. They are:

  • Company, Asset-Class and Time Diversification as discussed above

  • Management Methodology Diversification by including in the DPort both a buy-and-hold, MPT Segment and a buy-and-sell, DIT Segment. This enables the DPort to take advantage of the best features of each.

  • Trade Catalyst Diversification by using both subjective human judgments and objective observations of market data to trigger trades

The NAOI is confident that Dynamic Portfolios will become the investment type of choice in the future of investing.

Current and Future Investment Types that can be Sold Directly to the Public

At the bottom of the above diagram three arrows point down to the box labeled “Individual and Corporate Investors”. This shows that in the future of investing advisors and investment developers have THREE investment products that they can sell directly to consumers. They are:

  • MPT portfolios as used today

  • Dynamic Investments that can be used as complete portfolios

  • Dynamic Portfolios that use both DIT and MPT methods.

Added Benefits of the “Investment Product-Line of the Future”

The investment product-line of the future provides to investors, investment advisors and portfolio designers far more tools for creating effective portfolios and wealth solutions than are possible today using only MPT methods. The benefits they provide to investors are discussed in Section 13 of the NAOI Research Report and the benefits for advisors and the financial services industry are discussed in Section 14.