White Paper Overview

This Web page provides a short summary of the information provided in the Executive Overview and in each Section of the White Paper. It is provided to show you that the benefits of reading this Paper greatly outweigh the minimal price that we are charging for the download.

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Overview of the White Paper Content

The White Paper contains an Executive Overview, 12 Sections and one Addendum. Following is a summary of what you will learn in each area and how you can begin immediately transforming this knowledge into profitable actions.

Executive Overview – The Future of Investing Starts Here ®

The way we invest today is rapidly becoming outdated. Individuals are still given portfolio designed using 1950s-era methods in the form of Modern Portfolio Theory. MPT dictates that portfolios be designed to match the risk profile of each investor and then held for the long-term, regardless of economic and market conditions. This makes them dangerously vulnerable to market crashes that happen on an average of every 6-7 years. The NAOI has found that the investing public is increasingly reluctant to expose their financial futures to this risk. As a result, they are leaving, or not entering, the market in large numbers. To address this issue, the NAOI has developed an MPT alternative called Dynamic Investment Theory (DIT) and an innovative investment type called Dynamic Investments (DIs). This is an approach to investing that dramatically reduces risk while also increasing returns. By doing so, it will bring thousands, if not millions, of individuals into the market who are now on the sidelines in fear. The Sections of the White Paper discussed below summarize how it works, the benefits it provides to both investment buyers and sellers as well as how readers can begin taking advantage of it immediately.

“The Future of Investing Starts Here” is a Registered Trade Market of Leland Hevner and the NAOI.

Section 1:    Introducing the National Association of Online Investors

Founded in 1997, the NAOI is the premier supplier of objective and actionable investor education to the investing public. Thousands of individuals have taken our online courses, read our books (Wiley is one of our publishers) and/or attended our college classes. As a result we are a major influencer on how individuals make investing decisions and the financial organizations that they choose to work with. This Section shows how the NAOI is uniquely structured to develop innovative investing solutions, create wide-spread demand for them and to show advisors and financial organizations how to greatly profit from meeting this demand.

Section 2:   Why People Are Afraid to Invest Today

The NAOI is seeing today far too many people who need investing income not participating in the market. Or, if they are in the market, they are investing far too conservatively. When asked why, they tell us that they are simply not willing to subject their financial futures to risks inherent in owning 1950’s era, buy-and-hold, MPT-based portfolios in modern, volatile markets. They see static portfolios as being far too vulnerable to market crashes that occur on an average of once every 6-7 years. They also are not confident that advisors, who they know are also salespeople, are always working in their best interests. This Section discusses these issues and why fundamental change to the way we are taught to invest today is needed to enable more people to participate in the market with confidence and without fear.

Section 3:   Investor Goals for a New Approach to Investing 

To solve the problems discussed in Section 2, the NAOI began an R&D effort to find an updated approach to portfolio design and management, one that could better cope with modern markets. Our first task was to gain a better understanding of what individual investors needed in a new investing approach to enter the market with confidence. I was adamant that any new approach must be developed based on input from the investing public, not on decades old academic theories. A survey of over 500 NAOI students showed the top 5 goals for a new approach to be:

• Simplicity - People told us that they don’t understand today’s financial products. They want simple and transparent portfolios. They want to understand the equities that are in their portfolio and the logic/methods used for trading them.

• Higher Returns - We found that typical MPT returns of 7% -9%, and even lower after fees, are not adequate to compensate for the stress of constantly worrying about the safety of their portfolio value in today’s volatile markets. In a new approach to investing, people want, and rightly deserve, significantly higher returns than they are getting today.

• Greater Risk Protection - People are becoming increasingly aware of the fact that there exists in today’s world catalysts that have the potential of destroying their MPT-portfolio’s value virtually overnight and without warning - among these are pandemics, political unrest, excessive government regulations, natural disasters, cyber-attacks on US infrastructure, currency stability and more. Investors want protection of their portfolio value from these risks. They don’t have it today.

• Absolute Protection from Market Crashes - The investing public’s greatest fear is that their portfolio value will be wiped out by a market crash - an event that happens on average of once every 7 years. A massive number of people will enter the market when this goal is met.

• Elimination of the Advisor “Human Risk” Factor - MPT provides no trading plan for portfolios other than a periodic rebalance of asset allocations to match the investors risk profile. Trades are based on subjective human judgments that inject a major risk element into the investing process. This risks include the use of bad data, incorrect analysis, advisor sales bias, scams, fraud and more. The investing public wants this unpredictable risk factor eliminated.

This Section shows advisors and the entire financial services industry what they need to offer to the public in order to attract new clients and to retain existing ones.

Section 4:   The Development of Dynamic Investment Theory (DIT)

With the goals of the public in-hand our research goal was to meet them. We quickly saw that MPT methods met none of them. So we started with a blank slate and free to “think differently” about how investing could and should work to bring individuals into the market with confidence and without fear. Significant research led us to the field of Quantitative Analysis (QA) to find the answers needed. QA uses observations of historical market data to predict future market movements. Here we discovered the powerful predictive powers of price trends. This Section shows how we found three characteristics of market price behavior that we could use to predict future price movements of asset classes and market segments with a high degree of confidence. Then we added elements to this process that made the use of price trends both profitable and safe for the investing public. This Section discusses in detail how we created Dynamic Investment Theory.

Section 5:   Introducing NAOI Dynamic Investments (DIs) 

DIT defines the logic and the rules for creating an innovative investment type that we call Dynamic Investments (DIs). They are capable of automatically changing the equities (primarily ETFs) they hold based on a periodic sampling of asset class and/or market segment trends. Extensive testing by the NAOI showed that well-designed DIs are capable of producing higher returns with lower risk than virtually any generic MPT-based portfolios in all economic conditions with absolute protection from market crashes and no active management required. This innovative investment type met ALL of the goals set for us by the investing public as described in Section 3, above. In this Section you will learn how DIs work and be given DI configurations that can be used immediately after reading the White Paper.

To illustrate the power of DIs, the table below shows in the top row the performance of the simplest DI possible that rotates only between a Total Stock Market ETF and a Total Bond Market ETF based on a quarterly sampling of the price trend of each. Only the ETF with the strongest uptrend is purchased, or retained if already held, until the next review. The bottom row shows the performance of an MPT portfolio holding both of the same ETFs at all times with the allocations shown.

You can see that the DI not only produced higher returns but did so with lower risk. MPT says that higher returns are attained only with higher risk. DIT disagrees.

Section 6:    The Unique Features of Dynamic Investments

The market has never before seen an investment type like DIs. They are comprehensive investments that not only specify a group of ETFs to work with to meet a specific investing goal, but also how they are to be managed on an on-going basis via an built-in trading plan. This plan signals trades using objective observations of market data and by doing so removes the “human-risk” factor from the management process; one of the goals set for us by NAOI investor focus groups. And while MPT portfolios use two diversity elements – Company and Asset – to reduce risk, but also reducing returns, DIT portfolios use an additional diversity element in the form of Time-Diversity. It not only reduces risk but also enhances returns! In this Section you will learn how DIs meet ALL of the goals set for us by the investing public and more.

Section 7:    The Rise of Dynamic Portfolios (DPorts)

I need to make it clear that it is NOT the purpose of the NAOI to replace MPT with DIT; they work quite well together. In this Section you will learn how inserting DI building-blocks into a traditional MPT portfolio will both increase its returns and lower its risk. We call these Dynamic Portfolios. Amazingly, they use FOUR diversity elements as follows: Company, Asset Class, Time and “Management Methodology” - including both a buy-and-hold segment and a buy-and-sell segment. We believe that this is the investment type that will play an increasingly dominate role the future of investing and enable thousands, if not millions, of individuals to enter the market who are now on the sidelines in fear.

The diagram below shows a Dynamic Portfolio example configuration.

The DIT Segment will both reduce the total portfolio’s risk and enhance its returns. Designers are, of course, free to change the Segment allocations as they wish. In this manner, portfolio designers can take advantage of DI benefits without significant disruption to current operations. This is a goal given to us by the financial services industry.

Section 8:    Introducing The “NAOI Universal Portfolio” Product

The world of investing today suffers from the lack of a “default” portfolio that works for all investors, regardless of their risk profile. Such a portfolio is impossible using MPT methods as each must be customized to match the investor’s risk profile. By breaking out of the “MPT box”, however, DIT has enabled the NAOI to create one that we call the NAOI Universal Portfolio - NUP for short. The NUP has the goal of maximizing returns while minimizing risk in all economic conditions; a goal that works for all investors. In this very important Section of the White Paper I describe how the simple NUP is configured using both an MPT and a DIT Segment. I also show how by using just 4 ETFs, this portfolio earned an average annual return of +17 % with a Sharpe Ratio of 1.14 for the period from 2008 to 2020. And this performance was realized without the need for subjective human judgments. All trades were signaled automatically by a built-in trading plan based on objective observations of market data. The NUP is the first consumer “portfolio product” introduced to the market. It opens the doors to the “productization of investing” - the Holy Grail of the financial world that experts have been seeking it for decades. They haven’t found it; the NAOI has. You will learn how the NUP works in this Section and be able to use it immediately for your clients or for yourself.

Section 9:    DI Benefits for Investors and for the Financial Industry

The introduction of DIs into the market will provide powerful benefits for both investment buyers and sellers. For investors, they meet the goals set for a new approach as discussed in Section 3. Financial advisors and organizations will be able to easily, quickly and with minimal expense, create and offer a full line of powerful DIs for a full spectrum of investing goals. By doing so they will expand their client base, increase revenues and add value to their balance sheet. After reading this Section you will be motivated to begin planning the creation of a full product line of DIs almost immediately.

Section 10:     Opening a Vast New World of Investment Development

The introduction of DIT and DIs enables the world of investing to finally break out of the MPT “box” in which the industry has been stuck for close to seven decades. By creating market-sensitive investments DIT and DIs enable designers, advisors and even individuals to design portfolios that deliver performance that is impossible using MPT methods. The new approach also gives birth to a field of study that we call “Portfolio Design Science”. It opens the doors to the creation of a vast array of amazing investing products and methods that are not even being considered today due to the constraints of MPT. You will read about them in this Section of the White Paper. As just one example, the “Productization of Investing” is now possible. This is the Holy Grail of the financial world that experts have been seeking for decades. They haven’t found it. The NAOI has.

Section 11:  There Will Be Skeptics

Anytime that a change to the financial world occurs that is as significant as the introduction of DIT and DIs, there will be skeptics. In this Section we discuss the objections we have heard from investing professionals related to this new dynamic approach. For example, many have told us that because DIs often hold ETFs for less than a year, short term capital gains taxes will significantly erode their higher returns. We have two responses to this objection. First, most investing by individuals today is done in qualified savings accounts where capitals gains don’t apply. Second, the returns of DIs are still significantly higher than MPT portfolios even after capital gains are deducted. In this Section of the White Paper we address other such objections. We have yet to hear one that would make DIT less effective than MPT.

Section 12:   Why Dynamic Investments Cannot Be Ignored

The NAOI is well aware that change as significant as the introduction of DIT and DIs will not be easily accepted by a financial services industry that is prospering from the status quo. There will be organizations that prefer to ignore this innovative approach or push it into an “alternative investment” category and be done with it. That would be a mistake. DIT represents an evolutionary change to the world of investing that enables it to adapt to modern markets. The NAOI is convinced that advisors and financial organizations that offer DIs and DPorts will thrive in the future of investing while, those that don’t will struggle to survive. That’s just how evolution works. This Section discusses why change is inevitable and highlights just a few of the many reasons why it cannot be ignored.

Addendum: The Benefits of Working with the NAOI

After reading the above Sections of the White Paper you will have the knowledge and tools to begin creating and using Dynamic Investments and Dynamic Portfolios on your own. And you will understand how, by including DIs in your product offerings, you will have a massive advantage over competitors that don’t.

But to fully exploit the power of this evolutionary approach to investing and bring it to market first, you would be well advised to work the NAOI. We have been working with and teaching the use of Dynamic Investments for 5+ years. We know what works and what doesn’t. The ROI of a cooperative agreement with us will be off the charts.

The NAOI these types of cooperative agreements: Education Seminars, DI Design Classes, Consulting, DI Development Partnerships and Strategic Planning Partnerships among others. NAOI President, Leland Hevner is also available to serve on Advisory Boards to ensure that needs of the individual investor are taken into consideration when developing new products and strategies.

These support options are discussed in the White Paper’s Addendum as well as on our Web site. See the Navigation Menu at the top of this page.