The latest cautionary tale comes from YieldStreet, where thousands of investors poured billions into real estate and other private deals under the banner of diversification and access. What they received, according to recent reports, was something less appealing: mounting losses, frozen redemptions, and the slow realization that “illiquid” means exactly what it says—you can’t get out, even when you want to.

Marketing hype has a way of dressing up risk as opportunity. Diversification gets used as a shield, suggesting that simply spreading money across multiple private deals will provide the same balance and stability as a well-constructed portfolio of liquid, publicly traded assets. But diversification without liquidity can trap investors. Instead of smoothing risk, it can concentrate it, as each illiquid sleeve turns from “exclusive” to “inaccessible.”

The irony is that the best risk management isn’t found in exotic, illiquid products at all—it’s hiding in plain sight. Academic and industry research has consistently shown that lower-volatility, steadier investments often produce stronger risk-adjusted returns than their high-flying peers. Yet investors are drawn to the shiny and complex, overlooking the simple truth that patience and discipline usually outperform promises of exclusivity. In some cases, illiquid funds even create the illusion of safety by reporting smoothed-out returns—a kind of cosmetic accounting that hides the true bumps along the way.

Another overlooked element is leverage. Most illiquid investment structures—from real estate syndicates to private credit funds—rely heavily on borrowed money to amplify returns. That leverage works nicely in a low-rate world. But as the cost of borrowing climbs and willing lenders decline, it eats directly into investor returns while magnifying downside risk. Rising financing costs don’t just dent profits—they can turn a mild downturn into a serious impairment. When you combine illiquidity with leverage, you’ve built a structure that looks stable on the outside but is far more fragile than it appears.

The problem isn’t new. Wall Street has always been skilled at packaging products that appeal more to emotion than to prudence. Investors are sold on the idea of belonging—being part of a sophisticated club that has access to things “ordinary” investors can’t touch. The reality, though, is that belonging isn’t always beneficial. Sometimes it just means you’re locked inside the wrong room when the fire starts.

The lesson? A portfolio isn’t made stronger just by being more complex or less transparent. True diversification requires not just spreading investments across different opportunities but also retaining the flexibility to adapt when circumstances change. Liquidity is not a luxury; it is a risk-control tool.

At Auour, we’ve always believed that hype should be treated with suspicion, that complexity is often the enemy of resilience, and that illiquidity has to be entered into with eyes wide open. The YieldStreet story is only one of many reminders that in investing—as in life—the cost of chasing exclusivity is often higher than the price of patience.

When Zephyr announced Auour Investments as the Manager of the Decade for our Global Fixed Income strategy, the recognition was a moment of pride. Naturally, it sparked curiosity: How did a boutique firm like ours, with no analysts stationed across the globe or ex-Fed officials on speed dial, outperform industry giants like Morgan Stanley, PIMCO, Janus Henderson, and Capital Group?

The answer lies in the very DNA of our firm and the principles we’ve embraced since day one.

A Different Path

The Goliaths of the investment world operate with vast research teams, global reach, and dominance in trading volumes. They have the scale and connections to uncover every inefficiency in the pursuit of identifying “the best bond” or “the best stock.” And yet, empirical evidence tells us that this relentless search is often a losing game. Historically, the Goliaths have not consistently outperformed through their asset selection. With thousands of brilliant minds competing in the same space, inefficiencies quickly disappear, leaving little edge to be gained.

Adding to their challenges, many of these large firms rely on static asset allocation processes, hugging benchmarks to minimize the risk of deviating too far from the norm. They fear that significant deviations could harm their products or reputation. This rigidity, placing their marketing needs above client outcomes, often leaves them unable to adapt to changing market conditions, further limiting their ability to deliver consistent outperformance.

Auour doesn’t play that game. Instead, we built our processes to focus on the broader view: understanding and adapting to the risks inherent in the overall market. While others pore over individual securities, we leverage low-cost tools—exchange-traded funds (ETFs)—to outperform them through dynamic and intelligent asset allocation. Using passive ETFs reduces costs while gaining the precise exposures we need to execute our strategies effectively.

“Our dynamic approach adapts to market conditions, outperforming the Goliaths through intelligent risk management and cost-effective strategies.”

Active Navigation, Not Static Drift

Think of static asset allocation as sending a fleet of sailboats across the Atlantic, setting the sails at the start, and hoping some reach the destination unscathed. It’s a gamble on fair weather. At Auour, we approach investing like experienced navigators, constantly monitoring for storms, shifting winds, and hidden icebergs. Our active approach allows us to adjust course when conditions change, aiming for the best outcomes regardless of what the market throws our way.

Our focus on risk is not just about avoiding the obvious storms but also understanding the undercurrents that can subtly shift the market’s trajectory. We analyze factors such as credit costs and availability, momentum, valuation, and the interactions of markets across the globe to gauge how the market’s attitude toward risk evolves. By combining data-driven insights with a disciplined approach, we seek to protect against downside risks while positioning our portfolios to seize opportunities when the environment turns favorable.

This dynamic strategy—paying attention to how market attitudes towards risk shift over time—has been the cornerstone of our success. By focusing on risk, not predictions, we’ve managed to rank second in overall return and first in risk-adjusted return during our first decade. That’s no accident; it’s the result of our disciplined process and our commitment to looking at the bigger picture.

Dynamic Doesn’t Mean Tax Inefficient

One misconception about dynamic asset allocation is that it leads to tax inefficiency. At Auour, we’ve demonstrated this doesn’t have to be the case. All our products are built on the same foundation of monitoring and adjusting to risk. Though our strategies are dynamic, they are strategically dynamic, making moves only when needed and always with an eye toward tax efficiency.

“Dynamic doesn’t mean tax inefficient—our strategies minimize tax drag while maintaining the flexibility to seize market opportunities.”

Our demonstrated results speak for themselves. Despite being dynamic, our strategies have produced less tax drag^*** than the Goliaths’ comparable solutions. This approach allows us to aim for the best of both worlds: dynamic, risk-adjusted strategies that adapt to market conditions while minimizing unnecessary tax burdens for our clients.

Disclosures

Past performance is no guarantee of future returns. All investments carry the risk of principal loss. Auour Investments, an investment advisor registered with the U.S. Securities Exchange Commission, did not pay for this recognition.

(*) Universe Benchmark

(**) These benchmarks or indices are derived using universes of PSN separately managed accounts, (“SMA Indices”). Any SMA Indices should not be deemed an offer to sell or a solicitation of an offer to buy shares of any products that are described herein. Index or performance returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly into an index.

(***) For our purposes we have calculated tax drag based on the current federal tax rates for a family with an annual income of $400,000.

Top Guns Manager of The Decade Critria: The PSN universes were created using the information collected through the PSN investment manager questionnaire and use only gross of fee returns. PSN Top Guns investment managers must claim that they are GIPs compliant. Mutual fund and commingled fund products are not included in the universe. Products must have an r-squared of 0.80 or greater relative to the style benchmark for the latest ten year period. Moreover, products must have returns greater than the style benchmark for the latest ten-year period and also standard deviation less than the style benchmark for the latest ten-year period. At this point, the top ten performers for the latest ten-year period become the PSN Top Guns Manager of the Decade.

The content of PSN Top Guns is intended for use by qualified investment professionals. Please consult with an investment professional before making any investment decisions using content or implied content from PSN Top Guns.

All Rights Reserved. PSN Top Guns is powered by PSN. PSN is an investment manager database and is a division of Informa. No part of PSN Top Guns may be reproduced in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior written permission of PSN.

PSN Top Guns relies on data provided by third-party sources. Because of the possibility of unintended human or mechanical error that might occur, PSN does not guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event shall PSN be liable for any indirect, special or consequential damages in connection with use of any information or derived using information based on PSN Top Guns results.

Why sounding smart may cost you more than it earns you

There’s a strange irony in investing—one that’s easy to miss if you’re not paying attention to how we listen.

Time and again, the most respected voices in the room are the ones sounding the alarm. Those discussing bubbles, recessions, breakdowns, and black swans. The voices of caution, of concern, of pessimism. They sound wise. They sound prepared. And yet, over most meaningful stretches of time, they tend to be… wrong.

On a rolling six-month basis, equity markets show positive returns roughly 75%^[1] of the time. Major drawdowns—those dreaded 10% or greater corrections—show up in only about one out of ten observations. And even when the market does stumble, history tells us it recovers, on average, within 18 months.

Those aren’t assumptions. Those are statistics. They suggest that the investor with a bias toward optimism, not unbounded enthusiasm, but informed, steady optimism, is far more often rewarded than the chronic skeptic.

So, why does the skeptic sound smarter?

There’s actually an answer for that. In a study aptly titled “Brilliant but Cruel,” participants consistently rated negative reviewers as more intelligent and insightful than positive ones—even when their commentary was no more accurate. The takeaway? We mistake pessimism for depth. We confuse complexity with wisdom. And nowhere does that dynamic play out more regularly than in the world of financial markets.

Being cautious, of course, has its place. We’d argue that risk management is one of the most underappreciated disciplines in investing, when done right. But risk management isn’t the same as pessimism. Risk management is preparation; pessimism is posturing.

Unfortunately, the market rewards the first, while the media and public attention often reward the second.

It’s not hard to see why. We’re wired to react more strongly to negative news than positive developments. And when someone paints a complex picture of potential ruin, we instinctively lean in, assuming that complexity equals insight. That’s the trick. Simple truths—such as the resilience of capital markets or the long-term benefits of staying invested—may seem too easy to be credible. But they’re still true.

Now, of course, there are exceptions—those rare moments when being deeply pessimistic and betting against the prevailing current has paid off spectacularly. Names like John Paulson or Michael Burry come to mind, who profited handsomely during the housing collapse or the 2022 rate shock. But those were not casual contrarian views. They were the result of deep, granular research paired with bold, concentrated positioning—wagers that required not just conviction, but timing, structure, and a willingness to be very wrong for a long time. For every investor who made billions going against the grain, thousands made nothing or lost far more trying. Betting on collapse is not a repeatable strategy; it’s a career-defining exception. Building wealth, in contrast, tends to be quieter, steadier, and more boringly optimistic.

Peter Lynch used to remind investors that more money has been lost preparing for corrections than in the corrections themselves. He managed Fidelity Magellan during one of the most successful runs in mutual fund history—not by making great macro calls, but by staying grounded in fundamentals and the underlying adaptability of good companies. He believed that the economy and the market weren’t some unknowable force, but the sum of individual businesses solving problems and meeting human needs.

And that’s a key point. Markets aren’t magic; they’re a reflection of value exchange. At their core, equity markets represent the collective efforts of tens of thousands of management teams adapting to new environments, overcoming obstacles, and finding new paths to profitability. When inflation spikes, they adjust pricing models. When supply chains are disrupted, companies often find new partners. When technology shifts, they invest, reinvent, and reallocate.

We often talk about “the market” as if it’s some independent, moody entity—rising and falling on whims, headlines, and sentiment. In truth, that moodiness is merely a reflection of us: the collective fear and greed of millions of participants reacting to uncertainty in real-time. But beneath that surface-level volatility lies something far more durable: the market as a reflection of value exchange and adaptability. It’s the accumulated effort of thousands of businesses meeting changing demands, reallocating capital, solving problems, and ultimately creating wealth. That’s why it recovers. That’s why it grows. Not because of stimulus or sentiment or central bank heroics—but because, under pressure, businesses adapt.

In a recent note, we made the case for being a Positive Historian—someone who studies the past not just for its challenges, but for the persistence and progress that follow. This is very much in that same spirit. Optimism isn’t a mood; it’s a discipline. It’s a framework rooted in history, supported by data, and practiced through a structured approach.

At Auour, we’ve built our philosophy around embracing that simple truth while still respecting the reality of risk. We believe markets reward long-term participation, but we also believe in building guardrails for when the environment deteriorates. Optimism and risk management are not mutually exclusive. In our view, they’re partners .And at this time, our “partners” are suggesting holding about 15% in tactical cash.

So no, we don’t traffic in doom. And yes, we accept that this might make us sound a little less clever at cocktail parties. However, we’ll opt for clarity over complexity. We’d rather be right than revered. Because in the long run, the optimist tends to end up wealthier—even if the pessimist sounds smarter along the way.

1. Auour analysis looking at U.S. and global equity markets as represented by the S&P 500 and MSCI ACWI Indices (or their predecessors). Past performance is no guarantee of future returns. All investments carry risk of absolute loss. ↑

Then, the narrative shifted. Sweeping tariff proposals targeting all trading partners sent shockwaves through global markets. Supply chains were in doubt, inflation expectations rose, and companies reliant on global inputs were predicted to face significant margin pressures. The optimism that had carried into the first three months of the year quickly turned to concern. Money began to move defensively. Risk-off sentiment returned. A well-diversified portfolio was not providing sufficient protection, increasing the level of panic.

The pendulum swung again as the administration, responding to political and economic pressure, delayed the tariffs and quickly worked out deals with several partners. Talk of targeted trade enforcement replaced broad barriers. Markets, always hypersensitive to language and intent, quickly adjusted. As we mentioned in our last communication, Strategic Uncertainty, market participants became manic by attempting to reposition after every communication from the White House.

And yet, despite shifting policy winds, market volatility, and global risks, we are poised to finish the first half of the year up nearly 9%, close to the long-term average return for an entire year.

That result may feel counterintuitive to many. But it aligns with something we’ve said for years: markets are resilient. When examining global equity markets over the past 60 years, the 6-month return has been positive more than 75% of the time. When equities experienced a material decline, they surpassed the prior highs within two years on average. Could the next time be different? Maybe. But answering that question after the damage has been done has a very low chance of being the right decision. It’s important to remember that markets adjust, absorb, and eventually recover.

That doesn’t mean it’s easy to stay invested. Quite the opposite. It’s incredibly difficult. When we communicated during the April sell-off that our risk signals suggested that the trade war looked more like Brexit than the Global Financial Crisis, it was not without concern that we were misreading the indicators. When headlines scream the end is near and every portfolio starts to reflect that attitude, even the most seasoned investor can start to second-guess themselves. And it is those times where traditional advice, such as “ride it out,” “stay the course,” “you’re diversified,” often falls flat. Because in moments of deep uncertainty, diversification can feel like it isn’t working, and waiting can feel like passivity.

That’s when many investors become negative historians—remembering only the crises, the drawdowns, the crashes, and forgetting the recoveries, the resilience, and the long upward arc of progress.

At Auour, we try to approach it differently. We consider ourselves positive historians. Not because we’re blind to risk, but because we remember all of history. Not just the gut-wrenching drawdowns, but also the recoveries that followed. The innovations that were born in tough times. The bull markets that climbed out of bear shadows.

We understand the emotional weight of uncertainty. We’ve built our entire investment process to address it so that we can be more confident in being positive historians.

This is where our downside mitigation approach plays such an important role. Our process isn’t built around guessing what will happen next. It’s built around identifying when market conditions have changed in ways that warrant caution. When the reward for taking risks has diminished. Through a series of objective indicators, we monitor for signs of systemic stress and take action only when necessary. We raise cash, reduce exposure, and seek to protect capital in the moments that we think matter most.

Just as importantly, we don’t stay in cash indefinitely. We rely on our indicators to show that conditions are improving and the storm is passing. And when it does, we redeploy confidently rather than reactively.

This approach enables us and our clients to remain optimistic participants in markets, even when sentiment turns sour.

And if you need a real-world example of how critical that can be, look no further than one of the most storied investors in modern history: Peter Lynch.

The Peter Lynch Paradox
During his tenure managing the Fidelity Magellan Fund (1977–1990), Lynch delivered an astonishing 29% average annual return, more than doubling the market’s return. But the average investor in the fund earned just 7% annually, half the market return. Why the gap? Because investors consistently pulled money out after poor performance and rushed in after good years.

The lesson? Even the best strategy can’t overcome poor investor behavior. Timing mistakes—driven by emotion—can erase the benefits of even world-class management.

We don’t bring this up to scold. We cite it because it’s deeply human. People don’t fear volatility; they fear being the last one holding the bag. And when it feels like the bag is getting heavier by the day, they step aside. But often, they step aside just before the rebound.

We believe a strong investment process—one that adapts to risk and leans on evidence rather than emotion—is the best antidote to this cycle.

Being a positive historian means staying engaged and informed. It means remembering that history includes corrections and recoveries. And it means having a framework that allows us to participate in markets thoughtfully, without surrendering to panic.

Markets will always present reasons for worry. Our job is to remember the whole record, not just the valleys, but the many summits. And to use that perspective to keep walking forward, with process, purpose, and optimism while, of course, sprinkling in a fair amount of skepticism, humility, and humor. Being a positive historian doesn’t mean being naïve. It means recognizing the challenges while refusing to be a victim of them.

As we head into the July 4th holiday, it’s worth remembering that one of the privileges of independence—personal or national—is the ability to choose how we respond to the world around us. We can choose to see only the risks and uncertainties, or we can choose to see the progress and resilience that history has consistently delivered.

At Auour, we choose to be positive historians. Not because the road is smooth, but because the journey is worth it.

Wishing you a thoughtful and optimistic Independence Day.

IMPORTANT DISCLOSURES

This report is for informational purposes only and does not constitute a solicitation or an offer to buy or sell any securities mentioned herein. This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. All of the recommendations and assumptions included in this presentation are based upon current market conditions as of the date of this presentation and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal.

All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. Information contained in this report has been obtained from sources believed to be reliable, Auour Investments LLC makes no representation as to its accuracy or completeness, except with respect to the Disclosure Section of the report. Any opinions expressed herein reflect our judgment as of the date of the materials and are subject to change without notice. The securities discussed in this report may not be suitable for all investors and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Investors must make their own investment decisions based on their financial situations and investment objectives.

As the graphs below show, Buffett is right over the long-term. There are few periods when equities did not produce superior returns on an annualized basis over 20- and 30-year holding periods. It might catch your eye in the 20-year graph that buying into the market even at the worst time still produced a 2% annualized return. In the 30-year graph, buying at the worst time still produced an annualized 8% return. Not bad for exceedingly mis-timed investments!

Although it’s a true story that such returns are available for people who can stick to the investment through thick and thin, there’s a twist: If you need funds concurrently with a major drop in the market, you will be locking in sub-optimal returns by selling at the worst time and missing out (at least partially) on the rebound.

We analyzed the impact of distributions at various levels on a set amount of money invested in the market broadly as it runs through an economic cycle. In this analysis, the investor receives regular monthly distributions equal to (annualized) 3%, 5%, and 7% of initial funds. For comparison’s sake, we compared those to a scenario where no distributions are made. In these scenarios, we used the most recent economic cycle, investing into a static 60/40 global portfolio near the peak of the market in 2007 as it will show the impact of a major market correction.

The difference between the outcomes is startling. Buying into the investment cycle near the top of the market had a material impact on the internal rate of return, but the subsequent market rebound made the returns tolerable. However, when the investor received systematic distributions throughout the investment cycle, the returns were reduced such that the investor actually lost principal, even before considering the impact of inflation!

We highlight the impact of systematic distributions to show the risks of static asset allocations and the “weather the storm” mentality it requires. On the other side of the spectrum sits tactical management which comes in many flavors. For Auour, we are particularly interested in an approach that navigates away from major market downturns by moving to cash in times of anticipated market duress. We believe the ability to mitigate large losses from the market’s normal, yet painful, volatility can have a significant impact on portfolio returns and a client’s success of reaching their retirement goals.

The chart above shows the impact, assuming success, of positioning a portfolio for those rare, yet material, downturns by tactically protecting savings using cash. Under a regular, static distribution scenario, you sell securities no matter the market price, which is detrimental when markets turn materially lower.

However, if you mitigate the downturns by moving some funds into cash, the regular distributions can come from the temporary cash position and not from securities that are, for the time being, losing value. As a result of this form of tactical management, you have a better chance of seeing increased returns and achieving more of the market’s potential.

Obviously, no solution is perfect. Some tactical approaches come with more risk and likely higher turnover. However, that does not need to be the case as practiced by Auour. The analysis shows that the world investment markets produce positive outcomes the majority of the time. Historically, it has been seldom that markets experience deep and enduring downturns, lending support to Mr. Buffett’s advice. However, no matter how infrequent, the resulting damage by a downturn to a retiree’s portfolio can be significant and argues for a tactical approach to protection for us non-billionaires.

* We utilize Internal Rate of Return (IRR) for this analysis as Time Weighted Return calculations do not take into account the sequence of returns and the cash flows’ impact on a client’s outcome.

Caveats

This analysis relies on the hypothetical backtests of the Auour Regime Model and the asset allocations that it would have signaled as if the firm and the model were in place over the market cycle analyzed. Auour started managing outside assets in the Fall of 2013. Hypothetical results are net of estimated transaction costs and management fees.

There can be no assurances that the firm would have implemented the model as it was tested or that the resulting performance would have been obtained. As with any hypothetical analysis, it is error prone and suffers from at least hindsight bias. Though attempts were made to minimize biases and errors, no one should rely solely on the results presented as factors and conditions can not be precisely replicated. And, what should be obvious, past performance, be it real or hypothetical, can not and should not be relied on for indications of future returns. Though our mothers may state otherwise, none of us are perfect.

First and foremost, do your own due diligence on the person/firm.  Referrals are great but they are only a single piece to the puzzle.  Build a mosaic of the person through a combination of factors.  These are some that I think important;

• Look up the advisor on FINRA’s BrokerCheck database.  This database is run by the regulating body responsible for brokers and combines with the SEC’s database for investment advisors.  You will gain some information about the licenses they hold, states they are registered to operate in, and if they were parties to any disagreements with clients.
• Gimmicks annoy me.  It was burned into my mind at a very young age that if something sounds too good to be true, it typically is.  If the advisor’s website address is something similar to “retireyoung.com” or “growyourcapital.com” or “risklessopportunities.us”, it may suggest that he has spent more time buying website names than analyzing asset values and  your financial needs.
• Work ethic.  Does he spend more time playing than working?  I understand the work smart not hard motto but I still haven’t figured out how to do it within a couple hours a day with the remainder of the time spent on the golf course.  Maybe I’m not as bright as I thought…  To me, investing wisely and with discipline is tough.  There are over 5,000 public companies in the US, as many mutual funds, bonds, international investments, etc.  On top of that, there are economics drivers at play worldwide and geopolitical events that need to be monitored.  If he has figured out a way to comfortably analyze all of that while on the golf course, he shouldn’t need to be managing your money.
• Personal priorities.  This is a difficult one as it is never easy to walk in someone else’s shoes.  With that said, I believe it is important that you find someone that can match as well as possible the values and priorities you have.  This is a business of advising individuals and families on their future, watching out for and protecting against expected, as well as, unexpected challenges.  As I mentioned above, the job is a tough one, I don’t think you want to make it more challenging by having to hope he can foresee your needs if his are drastically different from yours.
• Is he working harder for his retirement than he is for yours?  I liken this to my experiences with auto mechanics.  We have all had the one that scared you into doing things that, in hindsight, may not have been needed.  Conversely, I have found the dream mechanic (I’m happy to share his name if you live in the Boston area) in a man that lays out the varying levels of maintenance; those items that need to be done, those that should be done, and those that he would do if it was his car.  Same goes for financial planning and you want to beware of the guy that scares you into products.

This is not meant to be an exhaustive list as it is obvious I haven’t mentioned anything about past performance (which will be covered in a later article).  This is meant to focus much more on the one overriding factor that I find important in an advisor (be it financial, legal, auto, etc):  Can you trust them to do right by you?