Tampa, Florida, April, 2018. The National Association of Online Investors has just released Dynamic Investment Theory (DIT) a new approach to investing that creates a next-generation investment vehicle called Dynamic Investments (DIs). DIs are “market sensitive” investments that constantly monitor market trends and automatically change the Exchange Traded Fund they hold in an effort to hold ONLY ETFs that track assets and/or markets/market segments that are trending up while avoiding those that are trending down.

By doing so, DIs consistently produce returns that are multiple times higher than MPT portfolios with less risk and NO active management required. In fact, the simplest DI possible, one that holds either a Stock ETF or a Bond ETF, depending on which is trending up strongest at a quarterly review, earned an average annual return of +26% for the 10 years from 2008 to 2017 with minimal risk and no active management required. This, while a typical MPT asset-allocation portfolio earned about +10% per year.

Dynamic Investment Theory is at the very least a viable alternative to Modern Portfolio Theory and at most a complete replacement. DIT changes the fundamental way we invest today and catapults the world of investing from the 1950’s, when MPT was introduced, into the 21st Century. Dynamic Investments will define the future of investing – it cannot be ignored.

Background: Investors Today Are Stressed

The National Association of Online Investors (NAOI) interacts with the investing public on a daily basis. We know that individual investors are becoming increasingly stressed by the current market volatility. This is a market in which 400+ drops in one day are becoming common place and obviously this is a cause for concern.

There are three major reasons for this increase in market volatility:

  • Ongoing political turmoil
  • The fact that the market has risen so far so fast is causing people to worry about this being a “bubble” that could break at any time
  • Interest rates are going up which typically precedes a drop in stock prices

Yet, uncertainty reins. It seems that each time the market drops it climbs back. And this simply increases the stress of making decisions.

The Root of the Problem

One reason that investors are worried is that they hold “static” portfolios in a very “dynamic” market. All hold portfolios designed using an approach called Modern Portfolio Theory (MPT) that was introduced to the market in 1952. While markets have change significantly since then, MPT has not changed at all, and this theory no longer works in modern markets.

MPT dictates that a portfolio be designed to match the investor’s risk profile. Then it is meant to simply be bought and held for the long term. MPT portfolios have no sensitivity to market movements. Thus, investor savings simply go up and down at the whims of the market and the threat exists that they could suffer major losses at any time. People find it difficult to plan for the future while their financial security walks the tightrope of the market without a net.

The NAOI Dynamic Investing Solution

We, at the NAOI, became acutely aware of the problem in 2008 when the MPT portfolios it was teaching students to create crashed along with the markets. People lost up to 50% of their wealth as a result of the crash while doing everything “right”. At that point NAOI President, Leland Hevner, stopped all education classes and refocused the resources of the NAOI on research to find a better approach to portfolio design that could replace MPT.

Following 5 years of intense R&D and another 3 years of testing, the NAOI met our goal with the development of Dynamic Investment Theory (DIT). DIT sets the logic and rules for a new investment type called Dynamic Investments (DIs). This next-generation investment vehicle is “market-sensitive”. It constantly monitors market price trends and automatically generates trade signals in an effort to hold ONLY equities that are moving up in price while avoiding, or selling, those that are trending down.

While MPT portfolios hold both winning and losing investments at all times to reduce risk, DIs strive to hold only winning investments to both maximize returns while also reducing risk. DIs are the first investment vehicle designed to thrive in today’s volatile markets.

The Power of Dynamic Investments

As an example, during the decade from 2008 to 2017 the simplest DI that rotates between only a Stock and a Bond Exchange Traded Fund (ETF) based on which was trending up most strongly at a quarterly review, earned an average annual return of +27% while an MPT portfolio was earning approximately 10% per year for the same period. The difference? MPT portfolios are static and “dumb”. DIs are dynamic and “smart”. And this is what is needed to thrive in today’s volatile and uncertain markets.

Student Feedback

NAOI students have been field-testing the use of Dynamic Investments for approximately two years, since mid-2015. Their feedback is almost universally positive. They tell us that DI’s, not MPT portfolios are the future of investing.

The Amazing Future of Investing

How Dynamic Investment Theory was developed and how/why DIs produce such stellar performance is documented in the NAOI book entitled “The Amazing Future of Investing” that is described and can be purchased in the NAOI Store.