Frequently Asked Questions

Investment Philosophy

1
What is your investment philosophy?

We believe that individual investors are best-served by 1) focusing first on their asset allocation and 2) minimizing the fees they are paying. 

Our approach to asset allocation is called dynamic asset allocation. We seek to hold a diversified portfolio of stocks, bonds, real estate, gold, and commodities from around the world, but to adjust the weights in each asset class based on its relative attractiveness in the current market. The goal is to achieve the benefits of a diversified portfolio, while avoiding the massive volatility and drawdowns of a pure “buy and hold” approach. 

Exposure to each asset class is most simply and inexpensively obtained by purchasing an exchanged-traded fund (ETF). We can base our ETF recommendations based on which ones you can trade commission-free at your brokerage account (available for TD Ameritrade, Vanguard, Charles Schwab, and Fidelity) in order to minimize the commissions you pay. 

2
What is the "IvyVest model"?

Simply put, the IvyVest model is the single portfolio that we would be comfortable recommending to almost anyone. We call it a "model" because it changes a little bit every month based on what is going on in the market. We think this makes sense: if you know what you're doing, wouldn't you think that you would hold a slightly different portfolio in 1999 at the height of .com mania then in 2009 when the world was falling apart? Surprisingly, most of the industry answers that question with a "no."

3
How does your model work?

Our model runs monthly and adjusts the weights across ten asset classes based on their relative attractiveness, as measured by a set of criteria built on Nobel-Prize winning research that is used by some of the world's best traders and investors. The model takes primarily a “valuation and momentum” approach. “Valuation” refers to the use a variety of factors to assess whether assets are attractively priced relative to their own history, and relative to each other. “Momentum” refers to the use of a variety of factors to assess the current price trend of an asset. We seek to reduce exposure to assets that are expensive and/or in a down trend, and add exposure to assets that are cheap and/or in an up-trend.

4
Why Should I Be Confident That Your Approach Works?

To evaluate any investing approach, you need to know 1) What logic is it based on? 2) How has it performed in the past? Note that a good approach requires both a sound logic and good past performance -- the first of these without the second is an impractical theory, and the second without the first is data mining.

For more on the logic of our approach, keep reading these FAQ and check out our white paper . For more on how the approach has worked in the past, check out the backtested results of our model.

5
What is the performance objective of the IvyVest strategy?

The objective of the IvyVest strategy is to out-perform a globally diversified buy-and-hold approach over the course of a market cycle, while substantially reducing volatility and drawdowns by avoiding the worst bear markets.

6
How would an investor who followed the rules in your strategy have performed in the real world?

Since 1980, a portfolio invested by our rules would have grown at more than a 13% annualized rate, 2.5% more than an equivalent “buy and hold” portfolio. At the same time, an investor following our rules would have faced less than half of the maximum drawdown as the buy and hold investor. The result is that an initial $100,000 investment would have grown to more than twice as much if you had followed our rules, then if you had followed a typical "buy, hold, and re-balance" approach.

7
Is the IvyVest model a "data-mining" type of approach?

No, the IvyVest model is a rules-based, or intuitive approach, rather than a data-mining approach. The difference refers to how the model was constructed. In our case, we started with a set of hypotheses about how we thought the markets worked (that were largely inspired by behavioral finance). Then we developed portfolio allocation rules based on those hypotheses, and tested how those rules would have worked in the past. In a pure data-mining approach, you would start with the past data and then develop a model to fit it. Data mining can be dangerous, because you may end up with a model that will only work in a particular historical regime, but that will subsequently have very poor out of sample performance.

8
How do you select which ETFs to recommend for each asset class?

When selecting from a group of functionally equivalent ETFs (for instance, ones that track the overall US stock market), we seek to minimize the total costs of annual ownership, a measure that takes into account the management expense ratio, the bid-ask spread when transacting, and the commission cost per trade. 

9
How would your strategy have fared during the 2008 financial crisis?

An investor following the strategy would have lost no more than 16% from peak to trough, versus the ~60% losses in the stock market. 

10
I'm concerned we might be in another bubble. What does this strategy do to protect me from buying into an overvalued market?

We built this strategy with just such a concern in mind, as we have noticed that a lot of people have been sitting on the sidelines the last five years waiting for things to go down again, and have subsequently missed out on one of the great bull markets in history. 

The model has a number of measures in place to protect from buying in at the top of a market. First, we automatically slowly shift out of expensive assets and into cheaper ones. Second, we use the prevailing price trend to influence the speed of the shift. If prices start to roll over, we will shift into safer assets like Treasury bonds. This is how an investor following our rules could have avoided the worst of the 2000 tech bubble crash and the 2008 financial crisis. 

11
How is your approach different from popular automated investing services?


There are two big differences. First, while we will tell you what to buy in your own discount brokerage account, we do not actually take your money and invest it for you. We think this is a more flexible and secure option for a lot of people, but we understand it's not what everyone is looking for. Second, we have a dynamic model that adjusts its recommendations based on what is going on in the markets, and attempts to avoid the worst bubbles and bear markets. Nearly all of the other automated services offer static models, that always re-balance back to the same asset allocation regardless of what is going on in the markets. The downside of this type of approach is that it assumes that the markets are always perfectly “efficient”, so does nothing to protect you in another 2008-style crisis.

12
How is your approach different from that of a retirement-date fund, like the Vanguard Retirement-Date 2040 Fund?

Retirement Date Funds are largely “static” models in that they change asset allocations only to re-balance, or as you get closer to your retirement date. They will not do anything to try to get you out of the next bear market. Our model is dynamic and changes based on what is going on in the market.

In addition, retirement-date funds may consist of actively-managed mutual funds, some of which may have high fees. We use low-cost ETFs to implement our approach in order to minimize expenses.

Finally, we employ a wider variety of asset-classes than most retirement-date mutual funds would. Empirical studies and basic financial logic suggest that this will increase risk-adjusted returns over the long term. 

13
How can you be sure your model will "keep working"?

Our approach is based on market anomalies that have been observed for the last century, and that are rooted in structural and behavioral factors. The future is inherently uncertain, but so long as people keep chasing trends and trying to keep up with the Joneses, we think we'll be okay.

14
Shouldn't I change my allocation based on my age (own more stocks when young and bonds when older)?

This is the conventional wisdom. There are three reasons we are comfortable recommending the same allocation to everyone. 

First, our model changes based on what is going on in the market. We think that it if stocks are very unattractive right now, you shouldn't be invested in them no matter what your age or risk tolerance. Similarly, if they are very attractive then you probably should be invested in them regardless. 

Second, there is little empirical evidence that people that follow the typical approach of shifting into bonds as they get older do any better than people that stick with a single balanced portfolio (see this paper for more). 

Finally, we think that a more sensible lifestyle approach to investing is to divide your assets into a “risky” portfolio, for which our service can provide an answer, and a “risk-free” portfolio that you may need to access in the next few years, which could be in CDs, bond-ladders, or short-term funds.

15
Is there any academic research that your strategy is based on?

The IvyVest approach is not wholly original. Our own value-add is primarily translating a host of academic research and practitioner wisdom into a set of portfolio allocation rules that are practical for an average investor to follow. To get a taste of some of the research that inspires our approach, check out the following papers:

16
Where can I read more about how your model works?

In addition to the links above, you can check out our white paper (work in process) for more. You might also want to peruse our blog posts and tutorials for a general background on our take on investing.

Implementing the IvyVest Model

1
How do I implement the IvyVest model for myself?

We have a software tool that will tell you exactly how many shares of each ETF to buy based on the amount of money you have to invest. Then you simply use go to your discount brokerage or 401(k) account and implement the trades. When you need to make a change, we'll send you an email with instructions.

2
How often will I have to place trades to follow the IvyVest model?

3-4 times per year, or about once every three our four months, depending on how volatile the markets are.

3
Can I use my existing brokerage account to do this?

Yes. The ETFs we recommend are available from any discount brokerage account. However, we recommend opening one at TD Ameritrade, Vanguard, Charles Schwab, or Fidelity so that you can benefit from the most relevant selection of commission-free ETFs. 

4
I don't have a brokerage account yet. Where would you recommend opening one?

You can follow our approach from any brokerage account, but we would recommend opening one at TD Ameritrade in order to maximize your savings from using commission-free ETFs. The others we would recommend are Vanguard, Charles Schwab, and Fidelity, in that order.

5
Can I implement the IvyVest model in my IRA account?

Absolutely, a self-directed IRA is a perfect place for it. 

6
Can I implement the IvyVest model in my 401(k)?

Yes. Though you cannot purchase ETFs in your 401(k), we have a tool to help you map each asset-class to a mutual-fund equivalent.

7
Is the IvyVest model tax efficient?

Yes. ETFs are probably the most tax-efficient vehicle on the planet. In addition, if you use our approach across multiple accounts, our software will help you re-balance your accounts in the most tax efficient-way possible.

8
Can I replace one of the ETFs that you recommend with a mutual fund that I have selected?

Absolutely. Because our approach is centered around asset allocation, it is easy to follow it and pick your own mutual funds, if that is something that you are interested in doing.

9
Can I replace one of the ETFs you recommend with my own stock picks?

Yes, you are free to use our model as an asset allocation overlay, and to select individual stocks to get exposure to the underlying asset classes. We have also had subscribers who are professional investors who use our model simply as another input in their own process. You are encouraged to use the service in whatever way fits you the best. 

10
I'm new to investing. Do you provide email support if I have a question?

Sure. Because we are not regulated as investment advisors, we cannot provide you with individualized advice on your personal situation. But we are happy to answer general investing questions, and to expand upon larger questions in our next newsletter.

11
I like your approach, but I'd like someone to take my money and manage it for me. Can you help?

Unfortunately we are not setup to directly manage your money (for now). But if you have more than $200,000 or so, please contact us and we may be able to point you in the right direction in your search. If you are just starting out and want nothing to do with managing your own money, our free and totally independent advice would be to purchase a Vanguard retirement-date fund and setup an automatic contribution every month from your checking account. 

Subscription Details

1
What do I get with a subscription?

You get access to our web tools, and you will receive our monthly newsletter. The web tools enable you to easily follow the IvyVest model in your own account by showing you exactly what to purchase for any size of investment. You will also get email alerts whenever you need to re-balance your account (3-4 times a year on average). We also have some big plans in the work for additional tools and content to help everyone make better, data-driven financial decisions. Subscribers will get access to anything we create in the future for no additional charge.

2
Do you have a sample newsletter I can read before subscribing?

Since you asked, there's one here. But we have a two week free trial, so why not sign up and check them all out?

3
How can I cancel my subscription if I am unhappy?

You can cancel anytime with two clicks from your account profile, or by emailing us.

4
What happens if I cancel in the two week free trial period?

We won't charge your credit card if you cancel during the two week trial.

5
What happens if forget to cancel during the two week free trial period and cancel afterwards?

We don't ask for a credit card in the two-week trial period, so you won't be charged unless you explicitly provide us with one during your trial period or after it is over. 

If you decide the service isn't for you after providing your billing details, we are happy to (within reason) provide you with a full refund if you contact us. 

6
What steps do you take to keep my credit card information secure?

We use Stripe to accept credit-card payments, which provides bank-grade security similar to the best ecommerce sites. We do not store your credit card information on our own servers, so anyone that “hacked” our site would not get your credit-card number. We never ask you for sensitive personal information like your brokerage account password, your social security number, or even your address.

7
What steps do you take to keep my personal information secure?

Foremost, we will never ask you for sensitive information like your social security number, date of birth, personal address, or brokerage account login information. Your financial accounts will remain yours, and yours only. The only thing you need to sign up is an email address, name, and credit-card number. For added security and confidentiality, we use SSL encryption for the entire website. We host our site on the same servers as amazon.com and netflix (Amazon Web Services).

8
Who is behind IvyVest?

IvyVest was founded by Alex Frey. Alex is the author of A Beginner's Guide to Investing, an acclaimed introductory book that has sold more than 100,000 copies .He is also a graduate of Harvard Business School, and a CFA Charterholder.

9
What is the difference between the two plans?

The starter model was designed for those with under $20,000 to invest. It includes full access to our monthly newsletters, as well as a smaller and more focused version of our model portfolio that uses only four ETFs.

The standard model includes access to our full model portfolio, which uses 10 ETFs in order to achieve more diversification and maximize risk-adjusted returns.

Fees

1
How much does a subscription to IvyVest cost?

A standard subscription costs $149.97 per year, or $49.97 per quarter. The yearly price works out to less than $15 a month, less than the typical person might spend on coffee.

We also offer a "starter model" for people with under about $20,000 to invest. This includes a smaller version of our model portfolio. It costs $49.97 per year or $14.99 per quarter.

2
Do you get paid to recommend certain funds, or operate a lead generation type of model?

No. Our only source of revenue is customer subscriptions.

3
What trading commissions will I pay to implement the IvyVest portfolio?

You can minimize and in some cases nearly eliminate trading costs by using commission-free ETFs if you have an account at TD Ameritrade, Charles Schwab, Fidelity, or Vanguard. At TD Ameritrade, Vanguard, and Schwab, you can use 8 out of 10 ETFs commission-free. At Fidelity 6 out of 10 are commission-free. The starter model can be traded commission-free at each of the four.

4
What management expense ratios will I pay to invest in your recommended ETFs?

We use some of the lowest-cost ETFs in the world to generate a standard portfolio with a weighted-average expense ratio of .15%. For comparison, the average actively-managed equity fund charges about 1%, and most financial advisors would add another 1% on the top to advise you and run your overall asset allocation.

Multiple-account tax-efficient asset-allocation model

1
How does the multiple-account tax-efficient asset-allocation model treat 401(k)?

IvyVest's software to re-balance your portfolio across several individual accounts treats 401(k)s identical to IRAs. If you have a 401(k) and an IRA both, they will be treated identically from a tax perspective. 

Because 401(k)s almost always offer mutual funds:

  • We'll ask you what kinds of mutual funds you have available in your 401(k) when you first save the account
  • You'll see recommendations in terms of the percentage of your overall account to allocate to each holding, rather than as a number of shares to buy or sell

If you have an entirely self-directed 401(k) you can simply select the account type as "IRA" instead to see recommendations as tickers and numbers of shares. 

2
How does the multiple-account tax-efficient asset-allocation model work?

If you choose to use IvyVest's software to implement your recommendations across multiple accounts, we will follow a three step process:

  1. Ask you about your account types and how much you have to invest in each account
  2. Figure out how much of each asset allocation you need to own across all of your accounts in order to achieve it
  3. Take into account the tax status of each individual account in order to determine where it makes sense to own each asset class

Generally it makes sense to own assets that produce income streams taxable at high rates, like bonds, in tax-free accounts, and to own assets that produce mostly capital gains and little income, in taxable accounts. 

Besides tax-savings, the other advantages of the multiple-account asset-allocation process is ease-of-use and commissions-savings. Because you only need to own all ten asset classes across all accounts rather than in any individual account, you end up owning less securities overall and also trading less. 

Don't see your question? Contact us and we will make sure you get an answer.