# Automated Investing Methodology

## **Aurium Portfolio Investment Methodology**

### **Introduction**

At **Aurium**, our AI-powered investment platform aims to provide users with a tailored, efficient, and optimized portfolio management experience. Our investment methodology combines advanced data-driven analysis with personalized financial strategies to help users achieve their financial goals with minimal effort. The methodology is designed to accommodate a variety of investment preferences and risk profiles, leveraging the power of Artificial Intelligence (AI), machine learning, and smart data analysis to continuously improve portfolio performance.

This document outlines the key elements of Aurium's portfolio investment methodology, including asset class identification, asset allocation, risk management, and personalization features that are integral to our platform's design.

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### **1. Finding Asset Classes**

The first step in portfolio construction is identifying the right asset classes to ensure diversification and alignment with user objectives. **Aurium** includes a broad range of traditional and emerging asset classes that offer various risk-return profiles, including:

* **Equities (Stocks):** These represent ownership in companies, offering growth potential. Aurium includes both **domestic** and **international** stocks, ensuring global diversification.
* **Fixed Income (Bonds):** Bonds provide a steady income stream with lower risk compared to equities. This includes **government** and **corporate** bonds, offering both stability and yield.
* **Alternative Investments:** These are non-traditional assets like **real estate**, **commodities**, and **cryptocurrencies**. They provide diversification and a hedge against inflation.
* **Cash Equivalents & Stablecoins:** These assets (e.g., **money market funds**, **stablecoins**) offer liquidity and stability, ensuring that the portfolio has sufficient funds for flexibility or emergencies.

By diversifying across these asset classes, Aurium helps mitigate risk while providing exposure to various market opportunities.

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### **2. Selecting Investment Vehicles**

Once asset classes are selected, the next step is to determine which investment vehicles best serve the portfolio's objectives. **Aurium** offers a wide range of vehicles that allow users to invest across the asset classes identified above. These include:

* **Exchange-Traded Funds (ETFs):** These are passive investment funds that track the performance of a particular index or sector. They offer broad market exposure and are low-cost options for most users.
* **Mutual Funds:** Actively or passively managed funds that pool capital from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets.
* **Tokenized Assets:** In the case of cryptocurrencies and digital assets, Aurium provides access to tokenized assets that represent ownership in underlying assets like real estate, stocks, or commodities.
* **Direct Investments:** Aurium enables users to invest directly in high-quality stocks, bonds, or cryptocurrency-based assets for more targeted exposure.

The selection of these vehicles is based on several factors, including cost-efficiency, historical performance, and liquidity.

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### **3. Allocating Assets**

The **asset allocation** process is crucial in determining the overall risk and return characteristics of the portfolio. The objective is to build a portfolio that aligns with the user's risk tolerance, time horizon, and financial goals. Aurium employs the following types of allocations:

* **Growth-Focused Portfolio:** Typically involves a higher allocation in equities and alternative investments, targeting higher returns with higher volatility.
* **Income-Focused Portfolio:** Focuses more on fixed income and dividend-paying equities to provide steady cash flow with moderate risk.
* **Balanced Portfolio:** Combines both growth and income assets, providing a middle ground for users who want moderate returns with a balanced risk profile.

Aurium uses AI-driven recommendations to assist in determining the ideal asset allocation for each user based on their unique circumstances.

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### **4. Mean-Variance Optimization**

**Mean-Variance Optimization (MVO)** is a foundational concept in modern portfolio theory, used to maximize the expected return for a given level of risk. The core principle behind MVO is to select a combination of assets that maximizes returns while minimizing portfolio volatility.

* **Expected Return:** The anticipated return of an asset, considering historical performance and forward-looking projections.
* **Risk (Variance/Volatility):** The standard deviation of returns, which measures how much returns deviate from the expected return.
* **Covariance:** The relationship between the returns of different assets, indicating how they move together.

By optimizing these factors, Aurium creates portfolios that strike the optimal balance between risk and return, helping users achieve the highest potential returns within their desired risk tolerance.

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### **5. Capital Market Assumptions (CMA)**

Capital Market Assumptions (CMA) are the foundational forecasts for expected returns, volatility, and correlations across asset classes. Aurium generates these assumptions by analyzing:

* **Historical data:** Historical performance of various asset classes.
* **Macroeconomic indicators:** Interest rates, inflation rates, and global economic conditions.
* **Market trends:** Analysis of market cycles and investor sentiment.

By using both historical and forward-looking data, Aurium develops a reliable set of assumptions that are updated regularly to reflect market changes, ensuring the platform adapts to evolving conditions.

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### **6. Expected Returns**

Aurium estimates **expected returns** for each asset class through a combination of techniques:

* **Historical averages:** The long-term average return of an asset class based on past data.
* **Machine learning models:** Predictive models based on vast amounts of economic, market, and sentiment data.
* **Expert consensus:** Input from leading economists, asset managers, and market analysts.

These expected returns are key in determining the allocation of assets and overall portfolio performance projections.

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### **7. Variance-Covariance Matrix**

The **variance-covariance matrix** helps Aurium evaluate risk at the portfolio level. By analyzing the individual risk of each asset and the correlations between them, the matrix identifies diversification opportunities.

* **Variance:** Measures the risk (volatility) of each asset.
* **Covariance:** Measures how two assets move in relation to each other. Positive covariance indicates assets move in the same direction, while negative covariance indicates they move oppositely.

A well-diversified portfolio includes assets with low or negative correlations, reducing overall portfolio risk. Aurium continuously adjusts portfolios to ensure they remain diversified and minimize risk.

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### **8. Portfolio Construction**

The final portfolio construction is based on the combined analysis of asset class identification, asset vehicle selection, and the application of MVO and CMAs. aurium's portfolio construction process:

* **Diversifies across uncorrelated assets** to optimize returns.
* **Aligns with user goals and risk tolerance** through continuous monitoring and AI-driven rebalancing.
* **Integrates tax-efficient strategies** to maximize after-tax returns.

Aurium uses real-time data and ongoing market analysis to adapt the portfolio dynamically, adjusting allocations as needed to maintain alignment with user goals.

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### **9. Personalization with Tax Rates**

Tax considerations are essential to the portfolio construction process. Aurium’s personalized approach includes:

#### **Allocations for California Residents**

For users in California, Aurium considers the state’s high tax rates, adjusting the portfolio to minimize taxable events and ensure maximum after-tax returns. This might involve:

* Placing tax-inefficient investments, like bonds, in tax-advantaged accounts.
* Focusing on tax-free municipal bonds.

#### **Taxable and Retirement Account Allocations**

Aurium optimizes asset placement by differentiating between taxable and tax-deferred accounts:

* **Taxable accounts** benefit from capital gains management and tax-loss harvesting.
* **Retirement accounts** (e.g., IRAs, 401(k)s) are optimized for long-term growth without the immediate tax burden.

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### **10. Handling Small Accounts**

Aurium ensures that small accounts are treated with the same level of care as larger portfolios. Special features for small accounts include:

* **Fractional shares** to ensure every dollar is working for you.
* **Low-fee ETF-based portfolios** that maintain diversification without high costs.

Small accounts still receive AI-driven recommendations for optimized growth based on the user’s risk tolerance and goals.

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### **11. Determining Risk Tolerance**

Aurium uses a dynamic approach to assess **risk tolerance**, combining:

* **Personalized questionnaires** that assess user preferences, financial situation, and goals.
* **Behavioral analysis** that tracks how users respond to market fluctuations and adjusts the risk profile accordingly.

This allows Aurium to provide a portfolio that matches the user's comfort level with risk while still targeting the highest possible returns.

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### **12. Rebalancing and Ongoing Monitoring**

To ensure continued alignment with goals, Aurium automatically rebalances portfolios based on market conditions and performance deviations. Key features of the rebalancing process include:

* **Automatic Rebalancing:** Adjusting allocations when they drift from target percentages.
* **Ongoing Monitoring:** Real-time analysis of performance, economic shifts, and market trends.
* **Tax-Loss Harvesting:** Selling underperforming assets to offset taxable gains, optimizing the user’s tax liability.

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### **Conclusion**

Aurium’s investment methodology is a comprehensive, AI-driven approach that integrates traditional financial strategies with modern machine learning and real-time data analytics. This methodology empowers users to make informed, efficient, and personalized investment decisions that align with their financial goals. By combining diversification, tax efficiency, dynamic rebalancing, and AI-driven insights, Aurium ensures that every user’s portfolio is optimized for long-term growth and financial success.
