Evidence Based Strategies Built for Real Life
Our goals are the same as yours – maximize returns and limit downside risk. By adopting new and improved research, Invst has developed several investment strategies devised to achieve these goals. You can never eliminate drawdowns, risk, or volatility, but now, you can apply proven principles to limit your exposure and capture upside potential.
Wild fluctuations in the market can kill your returns. By reducing volatility and increasing the consistency of investment returns, you can realize higher compounded returns and a less stressful investment ride. Our rules-based models use relative strength, absolute momentum, and economic stress applied to equity, bond, and real estate ETFs to create investment portfolios built with your goals in mind.
While these strategies don’t avoid declines, they aim to avoid big declines, ride winners, and create a less stressful investment experience. Invst strategies are based on timeless evidence using systematic-active, rules-based methodology previously reserved for wealthy investors. Invst offers these strategies directly you in one automated and affordable platform.
Strategies With Persistent and Robust Factors
Eugene Fama and Kenneth French, Fama-French, are well known for creating the 3-Factor model to describe market returns:
Beta – an investment’s sensitivity to market risk
Size – small stocks outperform large stocks in the long-term
Value – value stocks tend to outperform growth stocks in the long-term
They later expanded their findings to include two more factors: 4. Profitability (high profit firms outperform low profit firms) and 5. Investment (outperformance of firms who invest aggressively). Momentum has been widely noted in all of their research yet not named as a factor. Invst considers momentum the sixth factor. As such, we call our strategies FACTOR VI since they are largely momentum based. This factor, momentum (the premier market anomaly), is both persistent and robust and can be captured with rules-based strategies. We’ve been able to incorporate the best of Fama-French research with momentum to create portfolios previously only available through Quant money managers or high cost investment advisors. Invst is making them available to you through our automated investment platform and at an affordable price. The goal is to provide more consistent returns with fewer large drawdowns so you have a less stressful investment experience.
Evidence Based Investing
What is Evidence Based Investing?
Evidence based investing is a recent movement in the financial industry focused on what we see as real market behavior. By discerning what is real and narrowing down the evidence surrounding modern investing, we can then determine the best strategies to deploy to reduce volatility and maximize returns. While no one strategy is the best all the time, the strategies that perform consistently over long time periods have been clearly identified. Invst strategies consolidate and apply this knowledge to offer clients options which best meet their unique investing needs.
Active vs. Passive
The best investment strategy for you is the one you can stick with over a long period of time. Passive buy-and-hold strategies do work, but there are fundamental issues which need to be addressed:
Can you maintain a buy-and-hold strategy for at least 20 years? How long are you willing to hold?
Do you have the stomach to not make any changes during market drops of 20-50%?
Do I ever sell or make changes to my allocation? Why and when?
Do you have alternatives if the market is down when you are ready to draw on your account? (See sequence of return risk)
How do you know which assets to choose from and when to stick with them?
What if you need to take money out during a bear market?
Several studies, including Dalbar, that the majority of investors may say "yes" to all of the above even when their actions say "no." These investors routinely under-perform against the market and many end up woefully under-prepared for retirement.
You have one shot at this, so let’s get it right!
When it comes to active investing, most people think of hedge funds, stock picking, and other forms of speculation and gambling. This is NOT what we’re talking about. There is plenty of evidence showing one of the most effective forms of active investing is trend following. We use trend following in almost all of our investment strategies. We've compiled our evidence from studies completed during the last 100 years which have shown trend following as performing well in all markets.
What do we like best about trend following strategies?
- Invest in what is trending up, ride the trend upward
- Downside risk management to limit drawdowns by exiting downward trending positions
- Take small short term losses for larger long term gains (ride the winners, sell the losers)
- Get more consistent returns versus the market to take advantage of the power of compounding
- Creates a smoother investment ride, a strategy you can stick with over the long-term
- Removes emotion from the investment decisions by using a rules based strategy that is systematic
We can’t predict the future, we don’t know what the market is going to do, and performance in the past has nothing to do with performance in the future. However, we have the evidence explaining what works and what doesn't - what people can stick with and what makes them panic.
The Invst goal is to provide simple, rules based strategies to provide downside risk protection, consistent returns, and peace of mind.
Rules Based Solutions
Invst strategies are rules-based, meaning they use specific and quantitative trend following rules. One of the most researched areas of investing, trending following (momentum) has shown time and time again to be worthwhile strategy. As long as investor behavior exists (and there is no reason to believe it will ever go away) there will be market trends and inefficiencies for trend-followers to capitalize upon. The Invst goal is downside risk management and a smoother investment ride. Momentum allows investors to stick with a strategy rather than emotional decision making to compound their wealth.
One of the principles of trend following strategies is letting your winners ride, selling losers early and taking small losses while riding winners to larger returns. Getting out of losers early avoids large dips and big drawdowns.
Traditional investment theory says you have to capture the best days of the market to get returns of the market. What they don’t tell you is you have to capture the worst days to get those best days. The best days occur during large downturns, so you have to “just ride it out” to capture both. Trend followers work to capture up trends, avoid worst days and best days, and often end up with better returns. Read more here
Now you have the ability to invest in an evidence-based strategy yourself. What was previously available only to our private clients, now is available to you.
The choice is yours - trust Wall Street, trust the government, trust buy and hold strategies of yesteryear. Or choose an evidence-based strategy to reach your full financial potential.