The Smartest Money's 9 Steps of Investing

We’ve been conducting a countdown of the seven best investment strategies in the world that are currently accessible by institutional and high-net-worth retail investors.

We’ll continue this countdown in subsequent posts, but today I’ll highlight how to turn these great investments into the best possible portfolio in nine brief steps:

1. Determine the value of your investable assets.

2. Determine your investment time horizon.

3. Determine the amount of quarterly income you’ll need from your investable assets for the duration of your investment time horizon.

4. Determine the cash reserves you’ll need in addition to your income.

5. Calculate the risk-adjusted performance of the investments you have access to (across all asset classes) as measured since January 2007 or earlier:

   1. Summers Total Risk-Adjusted Performance Measure (“S_Ω” )

   2. Maximum Drawdown Duration Required to Realize the Expected Return (“MDDD_S”)

6. Park your cash reserve requirements from Step 4. into a money market account.

7. Divide your quarterly income requirements from Step 3. by the highest annual percentage yield (“APY”)  of the fixed income investment(s) you have access to that have a duration less than or equal to your investment time horizon and have not cut dividends or distributions since January 2007 or earlier; allocate that amount to that/those investment(s).

8. Allocate what remains of your investable assets after Steps 6. and 7. to the investment(s) with the highest S_Ω and an MDDD_S that is less than or equal to your investment time horizon.

9. Re-evaluate and repeat steps 1. through 8. periodically.

We’ve given you the means to effortlessly put these steps into practice with our algorithmic portfolio construction tool...

It constructs a portfolio of the best performance possible for any given investment time horizon, income and cash reserve requirements (i.e., liquidity mandate) by strategically assembling the best asset managers in the world that we’ve been able to identify by our rigorous quantitative standards.

I decided to provide you, our high-net-worth and institutional investor following, a glimpse behind our curtain—an opportunity for you to construct your own portfolio to see how your money would perform if it were optimally employed by our quantitative standards…

You probably won’t believe what you see until you remember that we’re applying Renaissance-level sophistication and rigor. Simply input a few very basic parameters, and see for yourself: