Soon’s fresh approach to investing is a better way to prepare for market downturns
The term “Black Swan” is a metaphor coined by author and risk analyst Nassim Nicholas Taleb. Taleb is most known for his studies on randomness and for bringing to light the unpredictable nature of the world we live in. Black Swans are the epitome of unforeseen events that even the most brilliant economists or advanced algorithms cannot predict. These market corrections such as the dot com bubble in 2001, the financial crisis in 2009, and currently the COVID-19 virus in 2020, will continue to occur.
On an individual level, Black Swans can be devastating. Taking Taleb’s metaphor a step further, we can infer that Black Swans must have an insatiable appetite, they can gobble up the value of your investments overnight. Although you may not be able to control their effects on every aspect of your life, you may now be able to reduce the impact of Black Swan events on your investments.
At Soon we have taken a unique approach to these unpredictable Black Swan events…leave less Black Swan food (investment assets) laying around for them to eat. This strategy takes form in three ways:
1) Invest in smaller positions, across more asset classes, more often.
2) Divest early, divest often.
3) Don’t try to predict the future by timing the market (because you can’t).
By nature, humans are emotionally biased creatures. Bringing bias into investments generally leads to people taking a small number of large positions. During bull markets, this can be a productive strategy. However, investing with bias typically leads to a less diversified portfolio and increases your exposure to Black Swans.
Soon solves this problem for you by first tasking non-biased algorithms to generate a diversified portfolio across multiple asset classes, and second by micro-investing across that portfolio often, taking many small positions over time. With Soon, you are constantly investing in smaller amounts every time you deposit money into your account. This increases portfolio variability in three areas: asset type, asset class, and the market value of each position.
As an example, suppose you are paid twice per month and your portfolio consists of 30 separate assets across 3 asset classes. That means every month you will be investing in 60 unique price positions. That’s 240 unique micro-positions every four months, and 720 per year, spread out in a well-diversified portfolio to increase the probability that more of your positions will increase in value.
This “invest often” strategy generates optionality but doesn’t reduce Black Swan food without…
The goal of traditional investing is generally to focus on increasing ROI (Return On Investment). To get long-term ROI, you need long-term growth. Soon does not replace your retirement accounts such as your 401(k) or IRAs, which use different investment strategies focused on long-term ROI. Using long-term investing strategies to meet your short and medium-term financial goals will trap your investment gains in your portfolio, which attracts unwanted Black Swan attention.
The more assets you have at play in the market, the more food you are leaving exposed for the Black Swans to gobble up. This is especially true with volatile and speculative assets.
Soon has a solution to help you reduce the amount of Black Swan food you have in your portfolio. Every time you spend, your highest available gain is divested. That means you are divesting on a consistent basis and using value from investment assets to make purchases.
You’ll also be receiving the benefits of any investment gains in the near-term. Soon uses monthly cash flow to increase your purchasing power in the short/medium-term to meet financial life goals such as paying for concert tickets, family vacations, or a down payment on a new car. Providing near-term liquidity and enabling you to leverage investments in the short-term to accomplish life goals, makes Soon the world’s first Lifestyle Fintech company.
By divesting often, Soon helps you to leave less food (investment assets) laying around for the Black Swans to gobble up.
Soon was inspired in part by Taleb’s thinking. By tying divest to spend, the amount and moment in time of each divestment is variable and random and takes advantage of any investment gains you may have at that exact moment. Divesting often and according to random events is a crucial innovation and it allows Soon to disassociate human bias and emotion from the equation by not trying to predict the future.
When you remove human emotion from investing and pragmatically and consistently take incremental gains when they are available, you don’t fall into the trap of trying to time the market and holding onto assets longer than you should. When investment assets are divested you are no longer at risk of losing value from their market volatility.
With Soon, unpredictable Black Swan events can have less impact on your financial life, ultimately making them less scary when they come around.
Soon will be entering public beta soon. Get on the waitlist now and we will notify you when Soon is available.