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Then you should subscribe to the mutual fund picks subscription so you can stay updated with the new funds and minimize holding old ones that go bad.

The optimal thing to do is populate the program with your life factors and current investment data, and then let us create the proposed portfolio for you at our hourly consulting rates. It usually can be done this way in a hour's worth of work. So you can save money by inputting the mundane details yourself, and then let a professional do the real work of creating the portfolio for you. Then you'd just make your own trades via your discount broker.

What's the Difference between the Asset Allocation Software and the Asset Allocation Models?

With the asset allocation software, unlike allocation models which exist before someone is around to invest in them, the investor submits various life factors needed to calculate a custom allocation mix that reflects their life situation. So it's not just using one of a few generic pre-existing model allocations (there's dozens of asset class mix combinations).

Model portfolios only take one life factor into account - investment risk tolerance category. This is determined by filling out and scoring an investment fact finder. There's little-to-no "work" involved. You just determine risk tolerance, allocate money according to the model's asset class weights, and then make the trades. The asset allocation calculator also takes risk tolerance into account as the most important factor in determining the mix, but it also uses a few more life factors.

With the asset allocation calculator, the currently-held investment mix is then compared to the recommended mix of asset classes. Then investments are shuffled around to create the proposed mix (the new investment recommendations, AKA proposed snapshot). It then displays current and proposed snapshots that can be analyzed and compared. Then future projections can be made given various assumptions. This allows complete control over most every aspect of the asset allocation process.

Model portfolios only show investment recommendations (the proposed snapshot), and mostly ignores the currently-held investment portfolio.

So with the comprehensive asset allocation software, there's work involved in creating an investment portfolio that's custom tailored to fit the investor's life. This makes it best suited for larger clients that are paying enough to make it worth doing the extra work (or doing it yourself if you're an investor with over $250,000).

Our portfolio models only use 16 asset classes, and the asset allocation calculator accommodates an unlimited amount (but we screen mutual funds for 21). The models have less asset classes to minimize the amount of money needed to buy everything. It's currently around $100k to buy the Fee-based Moderate Model (less for the other four allocations because they don't use every asset class (plus there's also $60k and $20k models for that).

You don't subscribe to the allocation software, because it doesn't change monthly. You'd only subscribe to the mutual fund selections to keep the funding vehicles current. It's best to subscribe to the models to keep portfolios updated with both fresh funding vehicles and allocation changes.

For DIY investors, the choice of using the investing models or the asset allocation software shouldn't be governed by how much money you have. It just should depend on how much time and work you're willing to put into matching the portfolio to your life. Using the portfolio models is fast, easy, and simple. Once you know your risk tolerance category, everything is done except making the trades. The asset allocation calculator is complex and will take an extra hour to create your investment portfolio, but it will match your life better.

Both systems let you use only your favorite mutual fund families. So this is the solution if you're in a situation like a 401(k), where you're "stuck" with limited investment options. For example several, like Fidelity, Vanguard, T. Rowe Price, and Oppenhiemer, have over a dozen asset classes. Our American Funds Model uses all eight of theirs. Both also work great with all other types of funding vehicles: Closed-end funds, bank investments, real estate, stocks, bonds, VA / VUL subaccounts, stock options, fixed annuities, non-publicly traded securities, etc.

About other DIY Investing Systems

There's no comparisons with competing programs listed here, because there are no competing programs. But we'll be looking around starting in summer '12 and posting them all here over time.

If you know of any do-it-yourself systems an individual investor can invest in for under $150,000 that gives you 16+ asset class diversification, and returns even close to ours, then please let us know and you may get this for free.

Our models are the same type of service that TD Ameritrade was spending millions advertising on TV, but it looks like they discontinued it, as we can't find it on their site anymore. They basically finally got around to copying our service that's been around for over a dozen years, and made a way for the masses to get a generic version of what we're doing.

The difference is that here you're getting an actual seasoned veteran doing the work, instead of a who knows who with no track record (and in who knows what third-world country). Then they can only steer you into buying the same old lame bloated mutual funds that Morningstar got paid off to recommend (probably just American Funds). This is just a recipe for the same mediocre high-risk low-return results everyone has been getting for decades. Our models are the real original deal that they just copied.

Investment software like Morningstar, Ibbotson (which was bought out by Morningstar in '06), and other code-driven investment software have all of the tools to allow you to manage money, but only after you already have a methodology to do so. You or an investment manager still needs to develop an actual system to do the work of portfolio management before you can use their investing software to put it into practice, evaluate allocations, or calculate statistics on backtested results. They do not "tell you how to invest."

Other than having a database of historic asset returns, an automatic way to download online investment account data into the asset allocation program (to self-input the current portfolio), making trades, and a having a built-in portfolio optimizer, this investment software does everything, and more, compared to other vendors. To buy these missing functions requires spending $400 to $2,100 more annually.

To see the usual array of portfolio statistics (beta, Treynor, Sharpe, etc.), you'd need to buy investment software with a very large database of monthly historical asset returns. Usually only large vendors like Morningstar, or ones that sell asset-level portfolio optimizers, have this.

Our asset allocation calculator has a very scaled-down way to calculate most of these stats, but there's a very important reason why we chose not to do a full-blown programming endeavor in this area (re-invent the portfolio optimizer):

The bottom-line is that not one of these things (sigma, beta, Jenson, Treynor, Sharpe, etc.) have any predictive value whatsoever. It's interesting to see what these stats have been in the past on whole portfolios, and/or on individual assets, but NONE of them have any consistency at all. If they "flop around wildly all the time at random," then they are TOTALLY USELESS in making any future predictions. If they did have any predictive value, even just a little bit, then we'd have been using them over a decade ago. Yes this means that all work done "backtesting" is most futile. You can spend hundreds of hours creating the most efficient portfolio humanity has ever seen, then as soon as you implement it in the Real World, it's almost guaranteed to greatly disappoint everyone.

While Mike was taking the CFA courses, he made a big fuss about each one of these stats via actual client portfolios in the Real World, using both Principia and the best asset-level portfolio optimizer. The results: not one stat added any value to the process whatsoever - NOT ONE, not even beta! So since none of that works to help out on anything, we just don't go there. But we did make the one sheet on the asset allocation software for people that are interested in these portfolio statistics, as a "freebie add-on."

The main reason we did that (even though they're all useless in predicting future performance) is because publishing the Fee-based Moderate Model's alpha number on the model demo properly proves how well we've been creaming everything, and also settles the ageless debate, once and for all, that active investment management can consistently beat passive management, after expenses.

So other vendors offer little-to-no systems to actually do much that's useful, because:

• It's too hard to for them to program and maintain,

• They're too cheap to employ real money managers to help them come up with a feasible turnkey system, so they don't know how,

• If they wanted to, then their marketing department would take the project over, and then they'd just get "paid off" to tout things like American Funds as the funding vehicles. Then the actual results would be very "sub-par."

• They're afraid of compliance problems and don't want to be on the hook as being labeled a fiduciary (because they know their buggy software will just get them into trouble),

So even if they did spend the resources to develop a working turnkey system, few of their customers would actually buy and use it. So from their point of view, big expensive projects like this would just be a risky endeavor, that would create a never-ending parade of new problems, so it would just fail because they wouldn't be able to charge enough for it to turn a profit.

The Short Version about "Cloud Computing"

News flash: There is no "cloud." The cloud is just the latest (Microsoft) marketing name given for a server that is not in your office.

In this Word docx download, you can see that Ameriprise, JP Morgan, Citi, and Capital One, all financial services firms that work in the clouds, were hacked into, and their client information breached. This could have been, and will be you, if you cloud compute, it's only a matter of time.

If and when we ever do "cloud computing" the cloud will just be a server sitting in our office (that we will have 100% total control over, and can see everything that's inside it).

So the bottom line question is, where do you want your very confidential personal data to reside? In a PC in your adviser's office (where it's safe and secure), or a server in a large corporation (where anyone can get into it and see what you're doing, and with whom - so they can market bleep to you too)?

To make a very long story short, if you're gullible enough to fall for this cloud stuff, then you shouldn't be surprised when the series of disasters start happening to their practice.

Please remember, we tried to be the first to warn you! Just because something is new doesn't mean it's good, nor does it mean it will survive more than a few years. When something new comes along, instead of asking yourself, "Can I do this?" you need to be asking yourself, "Should I do this?" Just like everything else, you will see for yourself after enough time goes by.

For investors: You should ask your advisor if they are working in the clouds (when they use CRM, investing, or financial planning software - not trading software). If so, then it's only a matter of time before there's a major "privacy breach" and your identity and all of the personal information you told your trusted adviser is sold to everyone on the planet that thinks they can make a quick buck from you. So our advice is to just say no to advisers that cloud compute and find a better one that is smart enough to see where this is going, and thus stays operating in the Stone Age where your world is safe.

With our way, you can also ensure none of your data will ever leave your advisers' control, by doing things like simply putting a password on their PC (and/or the spreadsheets). Who knows who's looking at their clients as marketing leads when it's all online. Even if the company swears they protect your privacy, a clever employee could be selling your data to lead-generation firms as a part-time job (without the company ever knowing - e.g., both Guuggle and Facebook had rouge employees selling leads to data mining firms in mid-2010). These two firms employ the best security as humanly possible - so think about how well marketing firms like Morningstar are safeguarding your data! This stuff happens on a daily basis - it's probably happening right now. There's whole armies of clever programmers in Russia, India, and China that would sell your mother to the devil for a penny in a second. All it takes is one "security flaw" in a cloud server, and your life could be toast in no time.

More Marketing Stuff

With either of these money tools, you can fire your money-losing investment advisor that brainwashed you into thinking they could pick stocks / ETFs and/or time the markets. None of that nonsense ever has ever worked out well for anybody, it's not working now, and it never ever will.

If you're working with one of these types of advisers, just look at your account. How's it doing? Are you up more than the S&P 500 since the beginning of the year (or down less)? No, and not by a long shot? Then why do you keep feeding them big money?

Things are not going to magically "turn around." Everything is just going to keep going like this forever until you fire them. They're not just going to wake up one day and realize, "What was I thinking with my delusions that I could predict the future by guessing which stock or ETF will go up or down today? I'm going to turn over a new leaf and stop doing all of that starting today!" This never ever happens, so wake up! Whatever your reason is for not firing them, just ask yourself, is it worth being "poor" in your golden years just to keep all of that going? Why?

You fire them by just transferring your account to a modern custodian like Ameritrade or Charles Schwab, using the "ACAT" process. It's easy, you just decide which type of account is best for you, then fill out their forms, and they will pretty much just automatically transfer all of your money to the new self-directed account you opened up. You can do the vast majority of it online in less than an hour in your pajamas without even going into their office.

Then when the forms reach your advisor, they pretty much have to just turn the crank and let everything transfer. They really have no say in the matter. You're stuck with all of the life insurance company product they sold you, but all of the investment securities, no - they just have to do their end of the paperwork, and then it's hasta la vista baby.

Then when they whine, just say, "I think I can get better performance, with less risk, and not have to pay you anything by doing it all myself." Just endure the whining and it will soon pass and then that will be the end of that. Just get on with your life, and you'll forget all about them soon enough.

If you hired them via any kind of a fee for services basis, then you'll probably even get a nice chunk of money back as a refund of pre-paid fees. Most of the time, after you've made the new trades in your new account, you'll still have money left over because of this refund (if your RIA bills in advance).

If you're hesitant because you paid initial sales charges, then guess what? That money is gone forever no matter what you do. But if you sell investments at a loss (depending on how long you've held them), even if it's just because of the commissions, then you can claim that loss as a deduction against future profits.

Then you can save all of their commissions and fees - forever! You've probably had consolidating your old 401(k)s and IRAs into one rollover IRA on your To-Do list for years anyway, so why not just do it all now?

Then after setting up a self-directed investment account with a new custodian, it's just an hour reading our directions, then a few minutes work to use the investment fact finder to select a portfolio model. Then less than half an hour making the trades, and you're done (other than keeping up with the monthly fund switches, and quarterly rebalancing - which are all explained in great detail in the directions).

You don't have to sell everything or anything in your current portfolio to obtain the correct mix with either program. For example, if you already own 20% of a large-cap growth fund that's doing fine (we can tell you if it's good or not for $9), and you scored Moderate risk tolerance, then you'd only need to sell 5% of it, because the recommendation is 15%. Actually, you could leave it the way it is, because you can do anything you want. You could just stay overweighted, or let 5% spill into the Mid-cap asset class, because they usually do.

Then for the rest of your life, it's: No more hype, worries, lies, self-enrichment schemes, phone tag, conflicts of interest, confusing / bad advice, trust issues, commissions, or investment management fees to pay again - ever!

You'll also be able to look at your account anytime online, make your own trades, and do a better job by managing your own investments, just by reading the directions (and all of the long-winded tutorials on this site).

Everything has support now, so you can get help with this, custom mutual fund replacements for those you can't buy from your custodian, advice on how to buy mutual funds if you have less than the minimums, and whatever it takes to get your portfolios all set up and running right. This is just what we do.

We keep Getting the same Questions about Our Unusual Investment Performance, so here's an old Client E-mail Paste that will Help:

Yes on one hand, the investment performance is remarkable. On the other hand it shouldn't be, because it's exactly what the CFA program teaches. I'm apparently the only CFA Charterholder that practices exactly what's taught. Everyone else went off to get rich being a hedge fund manager or creating derivatives like CDSs that started the '08 financial crisis.

What the CFA program teaches in a nutshell is this: Advisors should not be market timing at all, period. Nobody can predict the future, so this is worse than futile. Trading ETFs is just the current form of market timing.

Advisors should also not be trying to pick stocks, unless they have quasi-insider information, like they work for the company, used to work there, or know someone working there that's not technically an insider that's feeding them accurate and timely information. The only "people" that have enough information, resources, and data to profit by picking stocks (and/or time markets) are large institutions like mutual funds.

So once that battle is understood and won, and since there are only three ways to make investment decisions, and the most popular two are taught to be no-no's by the CFA program, there's only one methodology left - asset allocation. So I took that to mean this is what I should become an expert on, because my biz is managing money for investors in an RIA and financial planning setting.

What you're supposed to do is determine a mix of viable asset classes that fits an individual investor's life, and then either fund it with something very diversified like mutual funds, ETFs, or index funds (the CFA program likes index funds, as most advisers can't even pick open-ended mutual funds, or ETFs, well enough to beat an index fund).

So the questions then become, how do you determine what asset classes to use and how much? Well, I did it in both the Comprehensive Asset Allocation software and the Model Portfolios using the best asset-level portfolio optimizer, educated guesses, and way too much trial and error. After doing it thousands of times, I found what works and am sticking with it.

I've looked at everyone else's harebrained investment strategies since the mid-'80s, and found none to be better. I've stolen many ideas from many advisers (mostly from dozens of job interviews), and so I've tinkered with just about everything everyone else has come up with since '88 with actual client monies. The ideas that worked, I keep, and the ones that don't, I criticize.

Once that battle is over, the war is reduced to just deciding what to fund the asset classes with. To make a very long story short: Stocks - no, no diversification compared to a mutual fund that may own 100 stocks. Closed-end funds, no - there's no way to screen them to get any predictive value whatsoever because of the large and random premiums and discounts due to thin trading. ETFs, no they're mostly just lame index funds... with the same internal fees as non-index mutual funds (then commissions to pay when you both buy and sell them - plus my mutual fund picks also cream ETFs). Index funds, maybe, but the way I pick open-ended mutual funds creams index funds by way too large of a margin about 90% of the time.

So all of these questions are answered, war over: The way I allocate asset classes and then screen mutual funds adds by far the best value to the investment process than anything else, so I'm sticking with it to the bitter end.

The magic isn't all in the infrastructure (the allocation software), it has a lot to do with finding predictive value in the mutual fund picks. I look at many things, like historical performance, and try to predict what will keep up doing what it's been doing long enough to be useful. After thousands of trials and errors, I found a way to pick mutual funds that have a one- to two-year predictive value (all mutual funds crap out eventually and have to be replaced, which is why it's critical to keep the subscription going and rebalance. When I say crapped out, I don't mean it in a smelly sense, but the casino gambling way).

It doesn't always work (read about that on the disadvantages of asset allocation section of this page), but the winning picks beat the duds enough to add more long-term value than any other investing strategy I've ever seen. Plus every month I learn something new, so the screening process is continually refined and saved, so it gets better all the time.

I used to sell the little Morningstar screening filter mcr files that can be used by advisers in their offline version of Morningstar, but a big NY investment firm tried to copy my screening process in '03, so I don't sell them anymore. So if the information about how I pick mutual funds is not on the mutual fund recommendations page already, then it's a trade secret now.

There's no secrets about the allocator software nor models, just the opposite, every detail is explained. Also when you buy the models, not much is protected, so you can see exactly what's going on. Plus you'll get the same spreadsheet I use to calculate returns to account for fund switches, fees, and rebalancings since 1/1/99 or 1/1/03. So you can audit the returns and figure everything out.

Read about importing investment holdings data from the web into our asset allocation calculator.