The Waterfall Strategy
One portfolio can’t do every job. So we built three engines.
A Safety Engine that protects the floor, an Income Engine that pays the bills, and a Growth Engine built for the market’s worst days. Money moves between them on purpose, the way water moves down a waterfall.
Dry powder → Growth. The Safety and Income Engines hold dry powder. When markets hand out bargains, that reserve can add horsepower to the Growth Engine instead of sitting on the sidelines.
Safety Engine
Life insurance or annuities
Protects the floor
Contractual guarantees from insurance carriers keep this money out of the market’s way. It is the part of the plan that does not have to recover from a crash, and it doubles as dry powder you can access when opportunity shows up.
- Principal shielded from market declines
- Death benefit and living benefits (life insurance)
- Guarantees backed by the claims-paying ability of the carrier
Income Engine
Liquidity and income
Pays the bills
Built for cash flow and access. It runs a full income mix when markets are calm and shifts toward Treasury bills when stress spreads across markets, so the paycheck does not depend on selling something at the bottom.
- Steady cash flow from a diversified income mix
- Liquid: money you can reach without penalties
- A cross-market stress signal moves it toward T-bills
Growth Engine
Optimized by Heavy Tail Optimization
Does the heavy lifting
Portfolio mixes are chosen for how they behave on the market’s worst days, not on an average day. Hundreds of thousands of combinations are tested and the mix is re-checked every month, with a storm warning that can move it to defense.
- Built around tail risk, not bell-curve averages
- Re-optimized monthly
- Gets added horsepower when conditions favor it
Excess → Safety. When the Growth and Income Engines run ahead, we will often recommend rebalancing the excess into the Safety Engine, locking in progress where a crash cannot take it back.
The part most plans miss: how the money moves.
Dry powder for the right moment
Most investors are fully invested when markets fall, so a downturn is something that happens to them. In the Waterfall, the Safety and Income Engines hold reserves that don’t have to be sold at a loss. When conditions make it attractive, that dry powder can add horsepower to the Growth Engine.
Locking in progress
When the Growth and Income Engines run ahead, we will often recommend rebalancing the excess into the Safety Engine. Gains that move there are no longer exposed to the next market drop.
Inside the Growth Engine
Heavy Tail Optimization
Standard models assume market returns follow a bell curve. They don’t. Big drops happen far more often than those models expect, so portfolios tuned to them can carry more risk than they appear to.
Heavy Tail Optimization, developed by Ron Piccinini, Ph.D., at Straxen, builds portfolios around how markets behave on their worst days. The Growth Engine is managed with our sub-advisor, Altium Investment Strategies.
- Built around tail risk, not averages
- Re-optimized monthly
- Personalized to your risk profile
- Liquid separately managed account
- 01
Measure the bad days
Each ingredient is judged by its average loss on its very worst days (expected tail loss), not by how much it wiggles on a normal day.
- 02
Test hundreds of thousands of mixes
Straxen’s models test a huge range of combinations and keep the ones with the most return for the tail risk you can live with.
- 03
Re-check every month
Markets change. The mix is re-optimized monthly so it doesn’t drift into risks you didn’t sign up for.
- 04
Watch the storm gauge
A cross-market fear gauge can move the portfolio to defense when stress spreads. It reacts to stress; it does not predict crashes.
Safety Engine
Uses life insurance or annuities, chosen for your situation. Indexed accounts can credit interest linked to a market index while contractually protecting the account value from market losses. Life insurance adds a death benefit and, on many policies, living benefits for serious illness.
Guarantees depend on the claims-paying ability of the issuing insurer. Surrender charges, caps, and fees may apply. Insurance is offered through affiliated licensed agents who earn commissions.
Income Engine
A diversified mix of exchange-traded income funds that runs at full income when markets are calm. When a cross-market fear gauge signals broad stress, it steps toward Treasury bills, then steps back when conditions calm down.
Read the Income Engine deckWould it be a bad idea to see what your money would look like split into three engines?
Talk with an advisorAllocations are recommended only after an investment adviser representative reviews your full financial situation, objectives, and risk tolerance.
Important Risk Disclosures
Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results and is not indicative of future performance. There is no assurance that any investment strategy will achieve its objectives.
Options Risk: Options trading involves significant risk and is not appropriate for all investors. The use of options strategies involves complex tax considerations and there may be tax implications related to option positions. Options can expire worthless and the investor can lose the entire premium paid. Prior to trading options, investors should read the Characteristics and Risks of Standardized Options, available from the Options Clearing Corporation.
Insurance Products: Insurance products are not deposits, are not insured by the FDIC or any federal government agency, are not guaranteed by any financial institution, and may lose value. Guarantees are based on the claims-paying ability of the issuing insurance company.
Insurance Commissions: Insurance products are offered by licensed insurance professionals, who may be affiliated with Zoop Alpha LLC and who receive commissions on insurance sales. Those commissions are in addition to any advisory fees and give them an incentive to recommend insurance products, which is a conflict of interest. When selling insurance, they act as insurance agents, not as investment adviser representatives. You are under no obligation to buy insurance through them. See Form ADV Part 2A and Form CRS for details.
Zoop Alpha LLC is a registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. This information is not intended as a solicitation or an offer to buy or sell any security or investment product. This material does not constitute investment advice and is not intended as an endorsement of any specific investment.