The way investing works today has a short life span. It is not serving the investing public well. Let’s look at why:
Today’s standard portfolio design methodology is called Modern Portfolio Theory. Introduced to the market in 1952, It specifies that portfolios must be created to match each investor’s risk profile. Once an investor’s risk tolerance is estimated using very subjective techniques, MPT methods provide an optimal asset allocation, mainly between stocks and bonds, to match it.
MPT provides no guidance for ongoing portfolio management other than to buy- and-hold for the long-term. As a result, people today hold portfolios that have no market-sensitivity. Their value moves up and down with the tides of the market with no plan for taking profits and no protection against market downturns and crashes.
The financial services industry today is giving the public portfolios designed to work in the 1950’s when market were relatively quiet. But as can be seen in the chart at upper right, markets have evolved significantly since then while MPT methods have barely changed at all and they can’t cope with modern market volatility. This is why millions of individuals with money to invest are staying out of the market in fear of another crash like we experienced in 2008.
The investing world desperately needs a new portfolio design methodology designed to work in modern markets. Dynamic Investment Theory (DIT), released by the NAOI in 2017, does just that. It creates investments / portfolios designed to not only cope with modern markets but to thrive in them by being market-sensitive; capable of detecting and taking full advantage of areas of the market trending up in price while avoiding those areas of the market that are trending down. By doing so DIT-based portfolio produce returns that are significantly higher than MPT and with lower risk.
The chart below shows why change, in the form of DIT, is needed. You will about Dynamic Investment Theory on the next slide.