Market insights and analysis

How dynamic, risk-managed investment solutions are performing in the current market environment

1st Quarter | 2024

Quarterly recap



Current market environment performance of dynamic, risk-managed investment solutions.

By Jerry Wagner

The Declaration of Independence sets out one of our unalienable rights as the pursuit of happiness. Yet there has been much debate over the centuries about what happiness truly is and how we can obtain it.

Psychologists tell us that happiness is a state of “subjective well-being” (SWB). It is a sense of feeling good about yourself and your life in whatever context you experience it. In that way, it is not based on one absolute definition but rather on each person’s subjective state.

Still, there seems to be agreement on what does not result in true happiness. For example, being rich and obtaining stuff, while satisfying in the short term, does not seem to lead to long-term happiness.

Some believe that happiness is progress. In a blog post for Psychology Today, Timothy Pychyl explains that “progress on our goals makes us feel happier and more satisfied with life (our subjective well-being, SWB, increases).”

Further, he states, “The research on goal pursuit and well-being reveals an interesting cycle between progress on our goals and our reports of happiness and life satisfaction.” This cycle is shown in the following illustration.

This image conveys the concept that as we make progress toward our goal, we reinforce and expand our sense of well-being—and as our sense of well-being increases, it enhances our ability to progress and reach our goals.

How does happiness fit into investing?

While investing is just a small part of our life and our pursuit of happiness, the costs of modern life do make it an important part. So, how does the “happiness is progress” concept fit into the investing context?

We all seek progress in our investing but in different ways. Many think it’s all about maximizing returns. But buying a lottery ticket probably is the ultimate way to maximize returns. Pay a dollar and you could receive an almost infinitely large return on your money. The only problem is that you can lose your entire investment, and the odds are stacked against you.

So something more than mere returns must be assessed in determining investment progress. Risk and probabilities must come into the equation.

Many years ago, I co-wrote a paper for the Journal of Portfolio Management that demonstrated that in judging the efficacy of market timing you had to assess the returns earned in light of the risk taken. Risk-adjusted returns have now become the raison d’être for modern portfolio theory and the growth of liquid alternatives.

Progress in investing needs to be judged by the obtainment of the desired level of risk-adjusted returns.

The role of risk

The “desired level” is the subjective part. It is determined by one’s suitability profile. What level of risk can you live with and afford? It’s different for everyone, and it changes as one’s wealth increases and decreases and as the market incites emotions that fluctuate from fear to greed and back again.

This is why we regularly ask investors to use our suitability questionnaire to inform us of any changes in their profile over time or when they want to change strategies.

We use quantitative analysis to supply the probability part of the “investment–progress equation.” We think of “probability” as the odds of winning. But essential to giving the “odds” any meaning is the concept of repeatability. Flipping a coin yields odds of 50/50. But the results are random.

With quantitative investing, one seeks a repeatable process that has an edge over the random outcomes of a coin flip. That does not mean that it will be right every time, but rather that it will be right more often than a coin toss, or generate more returns for the risk taken than a game of chance.

That’s why we develop computer-driven strategies. Having a computer follow a formula of commands yields a repeatable process. Being able to test that formula over history yields a probability of success.

You can’t have “progress”—and, thus, investment happiness—without a meaningful, manageable goal

The psychological definition of happiness found that the pursuit of a goal was essential to the concept of progress. But others have found that pursuing just any goal won’t necessarily lead to happiness. Just as the mere acquisition of wealth and objects is not likely to be satisfying, the pursuit of goals resulting from lowering one’s expectations isn’t challenging enough to evoke happiness.

Nor is requiring peak performance all of the time. That is simply not attainable. Life is made up of a series of peaks and valleys—as are the financial markets.

So simply making progress toward a goal is not enough to find happiness. Instead, we need to seek meaningful, manageable goals.

I often get the impression when talking to investors and advisers that their goal in turning to active managers is to find a strategy that gets all of the gains of the S&P while suffering none of its losses. That’s not a manageable goal. It will lead to disappointment, not happiness.

A more realistic outlook is to first realize that the markets regularly have peaks and valleys, and that a manageable goal is to end up with more dollars than you began with at the end of a full market cycle. Achieving this goal would leave you in a vastly better place than the buy-and-hold investor in the first decade of this century. An investor in the S&P 500 Index received less than breakeven for 10 years, even after enduring two full five-year cycles in the stock market.

We help investors focus on the more meaningful goal by providing a chart of their time invested with us and our OnTarget Monitor in their quarterly statements. The latter takes the time horizon investors give us when they start with Flexible Plan Investments and projects out the probable outcomes of the combination of strategies they are invested in.

In addition to this monitor, each quarter we track the performance toward the probable, attainable goal of each investor’s portfolio over the time horizon of their choice. Green means the portfolio is deemed OnTarget. Red means a change is in order.

Flexible Plan Investments offers many different strategies and suitability profiles, so if your portfolio is in the red, a better fit for the current environment is always just a strategy change away.


The pursuit of happiness that is established as an unalienable right in the fabric of American governance is not a guarantee of happiness. As we have discussed, happiness is achieved through making progress toward a manageable goal.

For investors, that is not achieved by solely seeking returns, or by a Holy Grail methodology. Rather, it comes from setting attainable goals consistent with your subjective perceptions of the risk that you can comfortably and affordably take in building your investment portfolio. Progress, however, is not equal to relentlessly moving. Moving simply to gain a sensation of progress is not the answer.

True progress is made possible by knowing yourself (and documenting that knowledge using our suitability questionnaire) and by setting and monitoring your progress toward a goal that is personal to you and your portfolio (through our OnTarget Monitor).

May you use these tools to attain true investment happiness.

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