Market insights and analysis

By Jerry Wagner

Have you ever found a forgotten sandwich in the back of your fridge? Although it began as a delicious creation, over time, it transformed into something ... well, let’s say it wouldn’t make the cut on any cooking show. That’s entropy in action—the universe’s tendency to move from order to disorder. It’s not just about moldy sandwiches; it’s a fundamental law of nature that affects everything, including your investments.

The inevitability of change: Entropy and your investments

The concept of entropy is rooted in the second law of thermodynamics: Entropy (a measure of disorder) always increases over time in any closed system. With time, something that is hot will move to a cooler state. This law isn’t just some dusty concept from your high school physics class. It’s like an uninvited guest who shows up at your party—it’s everywhere and constantly pushing things toward chaos.

Picture, if you will, a teenager’s bedroom. No matter how pristine it is after a thorough cleaning, give it a week, and chaos inevitably creeps back in. What most teenage bedrooms go through is entropy in action. Now, imagine your investment portfolio as that bedroom. Without constant attention and adjustment, it too will tend toward disorder.

In the financial world, entropy manifests as market volatility, economic shifts, and the constant evolution of global dynamics. A strategy that performed admirably last year might falter in the face of new market conditions. An asset allocation that perfectly balanced risk and reward in one economic climate could become dangerously imbalanced in another.

Strategic adaptability: Managing risk in turbulent times

Consider how dramatically our world has changed in recent years. The rise of cryptocurrencies, the global pandemic, trade wars, and technological revolutions have all left their mark on the financial landscape.

Who could have predicted that a tweet could send stock prices soaring or plummeting? Or that a virus most of us hadn’t heard of in 2019 would reshape the global economy in 2020?

Technological advancements have accelerated the pace of change, creating new industries while rendering others obsolete almost overnight. Geopolitical factors, from elections to international conflicts, can send shockwaves through global markets in an instant.

These rapid changes underscore a crucial truth: Financial markets are constantly in flux. They are akin to the world’s most temperamental weather systems, able to shift from calm to stormy without much warning. In such an environment, a static investment strategy is a rudderless ship adrift at sea.

Dynamic risk management, as used in all of our strategies, is the cornerstone of navigating these turbulent waters. It involves strategies that adapt fluidly to conditions, seeking to maximize returns when markets are favorable and protect capital when they are not. This approach requires a vigilant, proactive stance—much like a captain who must adjust his sails before the wind changes, not after.

Flexible Plan Investments: Adapting to change

At Flexible Plan Investments (FPI), we’ve built our entire approach around this principle of adaptability. Think of it like a modern GPS in your car. Unlike old paper maps that become outdated the moment a town opens a new road, a GPS continuously updates, rerouting you around traffic jams and road closures in real time. Similarly, our investment strategies don’t rely on static models but constantly adapt to the current market environment.

This approach embodies our multi-strategy portfolios. Just as a well-rounded meal includes a variety of food groups to ensure balanced nutrition, our portfolios incorporate diverse strategies to provide comprehensive financial health. Each strategy brings its strengths to the table, working together to navigate various market conditions.

For our adviser partners, we provide a suite of tools that act like a Swiss Army knife for crafting customized proposals. Our OnTarget Investing process helps set realistic expectations for investors, which, in the world of finance, is as essential as remembering your wedding anniversary—forget either, and you’re in for a world of trouble.

FPI’s turnkey multi-strategy portfolios: A symphony of adaptation

Our crown jewels in the realm of adaptable investing are our turnkey, self-adjusting, multi-strategy portfolios. These are a far cry from traditional, set-it-and-forget-it, passively managed investments. Instead, think of each as a carefully conducted orchestra, with instruments (strategies) playing their separate parts but coming together to create a harmonious whole.

We understand that every investor is unique, with their own goals, risk tolerance, and financial situation. To address that, we’ve created five suitability portfolios. Like tailoring a suit, one size definitely does not fit all. We include our QFC Multi-Strategy Core portfolios and select QFC Multi-Strategy Explore offerings and strategies in a portfolio that aligns with each client’s suitability-based profile.

Beyond the initial setup, these portfolios are dynamic, living entities. They breathe in market data, reflect on it, and then shift the strategies as needed. It’s like having a financial fitness tracker—we’re constantly checking the vital signs to make sure everything’s in top shape. We designed this ongoing process to ensure that each portfolio remains aligned with the client’s suitability profile and the realities of the current market.

The cycle of renewal

One final FPI solution to the wear and tear of entropy on investor portfolios is our rigorous annual process of renewal. Our walk-forward optimization process is like sending your portfolio to a financial gym. It’s not about maintaining the status quo—it’s about evolving and improving.

This process works similarly to machine learning and AI, constantly learning from new data and adapting strategies to meet the current market environment. Imagine if your car could redesign itself every few months, incorporating the latest safety features, fuel-efficiency improvements, and performance enhancements. That’s our goal with your investments.

We designed this cycle of renewal to ensure that your portfolio never grows stale or outdated. It’s always at the cutting edge, ready to face the market’s challenges.

The FPI advantage: A comprehensive TAMP environment

Our adaptability extends beyond our strategies to the very structure of our offerings. As a turnkey asset management program (TAMP), we provide an all-inclusive ecosystem for investment management.

We designed and now subadvise 13 dynamically risk-managed mutual funds and a variable annuity subaccount, and we offer over 50 low-cost separately managed accounts (SMAs) using mutual funds. Each is calculated to tackle specific market challenges or capitalize on particular opportunities. It’s like having a toolbox where each tool is crafted for a specific job.

In addition, we provide more than a dozen ETF SMAs, offering exposure to various market sectors and investment styles with the flexibility and cost-effectiveness of ETFs. We even provide subaccount SMAs to select variable annuities and variable universal life insurance products.

For those who prefer a more hands-on approach, we also offer direct investing options for principled investing and a donor-advised fund for charitable giving. For those who want to manage and trade themselves, our model portfolios provide professionally designed investment strategies that are accessible throughout each day at the click of a button.

All of this is provided in a seamless TAMP environment, making it easy for advisers to access and implement these diverse strategies for their clients or use our turnkey, self-adjusting, multi-strategy offerings.

Guiding through change: The essential role of financial advisers

For our adviser partners, embracing this philosophy of change is equally important. In today’s rapidly evolving financial landscape, investors are looking for more than just product salespeople—they want trusted advisers who can guide them through complex and changing markets.

Our suite of tools empowers advisers to create or provide sophisticated, adaptive portfolios tailored to each investor’s needs. Advisers can monitor their entire book of business with us using our My Business Analyzer tool. There, they can also access our simple strategy change process; Illustration Generator tool; Portfolio Compare tool; Proposal Generator; Crash Test Report; and FPI’s diversification, durability, and anti-fragile testing process for every client account. Additionally, advisers can use our OnTarget Investing process to communicate the benefits of our adaptive approach to their clients.

Setting realistic expectations is a critical part of this process. It’s essential to help investors understand that while our adaptive strategies can provide significant benefits, they’re not a crystal ball. There will still be ups and downs, but we aim to make the investment journey smoother and more aligned with each investor’s goals.

Educating clients about the importance of adaptability in investing is another critical role for advisers. Advisers need to help their clients understand that just as they wouldn’t use a flip phone in the age of smartphones, they shouldn’t rely on outdated investment strategies in today’s dynamic markets.

The future of investing: Embracing continuous change

As we look to the future, one thing is sure: Change will continue to be the only constant. No one can predict the challenges and opportunities of tomorrow’s markets with certainty. Still, with an adaptive approach, we can be prepared for whatever comes our way.

FPI is committed to staying at the forefront of investment innovation. We’re constantly researching new strategies, refining our optimization processes, enhancing our service and compliance culture, and exploring ways to harness the power of advanced technologies to benefit our clients.

The competitive advantage of adaptable investing cannot be overstated. In a world where market conditions can change in the blink of an eye, the ability to quickly adjust course can mean the difference between capitalizing on opportunities and falling victim to risks.

Thriving amid change

The key to successful investing in today’s world lies in embracing change. Just as entropy inevitably increases disorder in closed systems, static investment strategies will become less effective over time. The solution is continuous renewal and adaptation.

At FPI, we’ve built our entire approach around this principle. From our dynamic risk management and multi-strategy portfolios to our cycle of rebirth and wide-ranging TAMP offerings, we’ve designed everything we do to harness the power of change for the benefit of our clients.

For advisers, embracing this philosophy of change offers a powerful way to differentiate your practice and provide tangible value to your clients. By leveraging our tools and strategies, you can position yourself as a forward-thinking adviser ready to navigate the complexities of modern markets.

And for investors, understanding the importance of adaptability is vital. The set-it-and-forget-it, passive approaches of the past are no longer sufficient in today’s dynamic environment.

Remember, change isn’t something to fear when investing; instead, we must embrace the opportunities it creates. With the right strategies and mindset, we can turn the challenges of an ever-changing market into a decisive advantage.

Thank you for your trust in FPI. We look forward to continuing to evolve and adapt with you, navigating whatever changes the future may bring. Here’s to successful, adaptive investing!