For over a decade after our founding in 1997 the NAOI took for granted that industry-standard investing methods, such as the unquestioned use of Modern Portfolio Theory (MPT) to design and manage portfolios, were optimal for the task of empowering investors. The goal of our education content, therefore, was to teach these methods to the investing public. As time passed, however, we found that this thinking was wrong.

Following the market crash of 2008-2009, when the portfolios we had taught our students to create lost significant value, we had to face the harsh reality that buy-and-hold portfolios designed using MPT methods, introduced in the 1950’s, could not cope with 21st century markets.

With this realization I, Leland Hevner, President of the NAOI, suspended all education classes and opened the NAOI Research Division to find and develop an alternative to MPT for the design and management of portfolios. I had to face the fact that investor empowerment required more than education; also required was innovation.

This page provides a quick overview of how and why our Research and Development Division enables the NAOI to deliver more than investor education to our students; it enables us to provide total investing solutions to investors as well as to the financial services industry.

The Creation of Dynamic Investment Theory and Dynamic Investments

The first task of the NAOI R&D Division was to find and develop an alternative to MPT methods for the design and management of investment portfolios. We met this goal with the creation of Dynamic Investment Theory (DIT) and the innovative investment type it creates called Dynamic Investments (DIs).

You can read how DIT and DIs were developed and how they work in the “Dynamic Investing” area of this Web site starting at this link.

With the creation of this innovative approach to portfolio creation, I restarted NAOI education classes, teaching both DIT and MPT methods. At the NAOI, we now have greater confidence that we were not just teaching students how investing works but also how to create portfolios that provide higher returns with lower risk, in all economic conditions - whether they invest on their own or by working with advisors.

The Benefits of Investing Innovation

The creation of DIT and DIs is one example of how the world of investing needs to evolve to better meet the needs of the investing public. We found that this evolution can only take place if the financial services industry is willing to break out of the MPT “box” in which it has been stuck since the 1950’s. By doing so the NAOI was able to create a new investment type - called Dynamic Investments (DIs) - that can produce returns that today’s experts will say are impossible, with lower risk and no active management required.

Go to this link to read about the innovative features of DIs that make their exceptional performance possible.

With the introduction of DIs the world of investing changes at a fundamental level. They usher in a new era of investing that is simpler, more profitable and safer for the investing public. This will bring thousands, if not millions, of individuals into the market that are now on the sidelines in fear.

DIs provide massive benefits for the financial services industry as well. They enable advisors and financial organizations to easily create powerful investment products, product lines and portfolios that produce returns far higher than those that they offer today - and without higher risk. Financial organizations that offer Dynamic Investments and Dynamic Portfolios to the public will greatly expand their client base and increase revenues significantly. Go to this link to read about the benefits that DIs will provide to both individual investors and investing professionals.

The NAOI Research and Development Process

The organizational structure of the NAOI (shown and discussed on the Home Page of this site, makes us uniquely capable of creating the innovative investing methods and investment products that meet our mission statement of empowering individuals to invest with confidence and success. Presented below is the process used to not only develop new investment products but also to take them “mainstream”; used by millions of investors. In the discussion below I will use the development of DIT and DIs as an example of using this process.

How the NAOI R&D Process Works

1. Identifying a Need. As you have read on this site, the NAOI is the market’s premier provider of objective education to the investing public and we interact with the investing public on a frequent and continuing basis. As a result we have an unmatched knowledge of what individuals want and need to enter the market with confidence. Many of these needs can be met via NAOI education but some cannot. As an example, following the market crash of 2008-2009, people that had suffered significant losses by holding MPT-based portfolios left the market. They and told us that they would not return until they were offered portfolios that provided absolute protection from future market crashes without sacrificing returns potential. MPT methods don’t provide this benefit, so education alone could not meet this need. Doing so, then, became a a candidate for submission to the NAOI Research Division.

2. Evaluating Solutions. With a user need identified by our Education and Investor-Market Research Divisions, it is first taken to NAOI management to discuss and evaluate potential solutions. If it is confirmed that additional education cannot solve the problem the next question asked is if solving the problem is essential to meeting the NAOI mission statement. If the answer to this question is “yes” the problem is sent to the to the NAOI Research and Development Division for analysis.

3. Initiating a Research Project. The R&D Division first makes sure that they completely understand the requested task by working with the Education Division, the Investor-Market Research Division and, often, directly to individual investors. With a complete understanding of what is needed, the R&D Division next searches the financial services industry in an attempt to identify current developments in progress that could solve the problem and that we could include in our education content. In our example related to developing portfolios that could provide superior returns with absolute protection from market crashes, no such developments-in-progress were found. At that point the R&D Division provides NAOI management with an opinion on the feasibility of solving the problem with new developments along with estimates of the time and costs required. This is the information that management needs to either approve or reject the R&D project.

4. Finding and Developing a Solution. With management approval, the R&D team “brainstorms” a plan for solving the problem. They are encouraged to “think differently” to find it. In our example, to develop portfolios that produce both high returns and provide absolute protection from market crashes, the research team decided to use elements of quantitative analysis as described at this link. Extensive testing in the R&D Lab showed that the solution they developed - in the form of Dynamic Investments (DIs) - met the need. Example performance of the simplest DI possible is shown at this link where it can be seen that its returns were significantly higher than traditional MPT portfolios with the protection from market crashes that the public requested.

The next step was to present this solution to focus groups of students who represent a cross-section of the investing public. Using feedback from this group, the solution was “tweaked” until it meet the goals of the focus group in terms of performance and ease-of-use. With this approval from individual investors, the Dynamic Investments solution was presented to NAOI management who directed the R&D Division to develop the required support system for the new approach and then signed off on its release to the market.

5. Teaching the Public How to Use New Products. With approval from NAOI management, the Education Department created education content aimed at teaching individuals how to use Dynamic Investment Theory and DIs. This content was integrated into NAOI courses and books used throughout our extensive education channels. By doing so, the NAOI creates demand for this new approach and our students begin looking for financial organizations that offer it.

6. Consulting to Show Financial Organizations How To Better Meet Investor Needs. At this point in the development and release process the NAOI Consulting Division gets involved. It develops practical applications that will enable financial organizations to profit from integrating Dynamic Investments into their product lines and shows them the benefits of offering the new approach and how to do so in a profitable manner. The NAOI not only creates demand by teaching the public about new developments but also teaches the financial services industry, via consulting agreements, how to meet this demand.

Process Summary

This brief discussion of the process used by the NAOI to create new, innovative investing products and methods shows how we are uniquely structured to do so. Our Education and Investor-Research Divisions first identify the problems face by the investing public that education, alone, cannot meet. The R&D Division then develops the solutions needed and delivers then to the Education Division for inclusion in our education course content. This creates investor demand for the new development. The NAOI Consulting Department then shows advisors and financial organizations how to profit from including new developments into their product lines in order to meet this new demand. If we were making cars, for example, this process would be described as “vertical integration”. This is unique in the financial services industry.

Creating a Better Future of Investing

As equity markets become more volatile and the number of catalysts that can cause the market to crash rapidly and unexpectedly grow, the risk of owning static, buy-and-hold MPT portfolios is becoming unacceptable. From daily interaction with the investing public the NAOI has learned that because of this risk, many individuals have left, or are leaving, the market. And a significant number of young people are not entering the market at all.

To stem this outflow of people from the market, the financial services industry needs to better understand what the public needs to invest with confidence and without fear and then provide it. The creation of Dynamic Investments and Dynamic Portfolios are an example of doing just that. And the NAOI knows that investors will flock to financial organizations that offer them. In fact the NAOI will refer students to advisors and organizations that do so.

Current and Planned R&D Projects

But DIT and DIs just one step toward the NAOI efforts to create a better future of investing. There are other projects in the NAOI’s R&D pipeline that are equally consequential. They include, but are not limited to, the following:

• Creating optimal Dynamic Investments for a full range of investing goals using the NAOI’s unique development platform

• Defining superior wealth creation solutions using for Dynamic Investments and Dynamic Portfolios

• Defining a more effective measure for investment risk - volatility and standard deviation are dangerously outdated for this purpose

• Breaking the MPT risk-reward connection. MPT says that higher returns come only with the assumption of higher risk. DIT says, and shows, that this is not true

• Creating Dynamic Portfolios with FOUR+ degrees of diversification instead of the two used by MPT portfolios

• Defining a “Universal Portfolio” that works for all individuals regardless of their risk tolerance and that has a built-in trading plan for capturing gains and avoiding losses with no active management required

• Making the “Productization of Investing” a reality. This is the Holy Grail of investing that the financial world has been seeking for decades. They haven’t found it, the NAOI has.

• … and there are more.

The way investing works today has a short life-span. While MPT, buy and hold methods will not go away, in the future of investing they will simply be one component among many other options that the NAOI is developing - starting with Dynamic Investments. We envision a future of investing that is simpler, more profitable and less risky than it is today. And with these changes we see far more people participating in the market than there are today. This is what the NAOI Research and Development Division is working on.

The NAOI Research Report - “Introducing Dynamic Investment Theory”

The NAOI Research Report shown below provides the information needed to fully understand how the NAOI is changing the world of investing at a fundamental level. Investment Advisors and Financial Professionals who study its content will be among the first to view the future of investing and to begin planning for it NOW. It can be purchased at this link.

Working with the NAOI

We offer several type of cooperating efforts that your organization can take advantage to not only survive but thrive in the future of investing. Among them are the following:

Product Development Partnerships: We invite financial organizations who share our passion for empowering individuals enter the market with confidence, with success and without fear to join us in developing innovative investing products, methods and solutions via an NAOI Development Partnership as discussed at this link.

Consulting Agreements: We stand ready to show financial organizations how exponentially expand their client base and increase revenues by offering innovative products and wealth solutions that will enable them to exponentially expand their client base, increase revenues and hold a massive competitive advantage in the crowded field of financial services. Consulting Agreements are discussed at this link.

Advisory Agreements: NAOI President and Research Director, Leland Hevner, is available to advise organizations how to better meet the needs of the investors. He brings the “voice of the individual investor” to any tactical or strategic planning process. Contact him at LHevner@naoi.org to discuss this option.