Advisory API Systems LLC

How to Use Ocelot℠ Core

1. Take an inventory of your household’s wealth. It divides into three categories:
   1. Income streams you cannot legally sell or assign. Future Social Security and Medicare benefits; public, ERISA-qualified private, and military pensions; future wage and salary income; and miscellaneous non-assignable benefits such as veterans benefits, Supplemental Security Income (SSI), Social Security Disability (SSDI), workers’ compensation, unemployment insurance, child support received, and alimony received fall here. These are entered through the Social Security earnings record, Pensions section, employment income fields, and — for the miscellaneous non-assignable items in this list — the “Other Annual Income” field. None of these is part of any “keep or sell” decision.
   2. Assets you legally could sell but may choose to keep outside the optimization. These include your primary residence and other real estate, vehicles, a closely held business, annuity contracts, retirement accounts (IRAs, 401(k)s, etc.; see the RETIREMENT ACCOUNTS rule below), bank CDs whose early-withdrawal penalty makes withdrawing now uneconomical, and assets entered in the “Other Background Wealth” field — including collectibles (fine art, fine wine, antiques, fine furniture, rare coins, stamps), precious metals (gold, silver bullion), private-fund interests (private equity, venture capital, hedge funds, limited partnerships), cryptocurrency and digital assets, unvested RSUs and stock options, deferred compensation balances, promissory notes and loans receivable, mineral, timber, and water rights, intellectual property (patents, copyrights with commercial value), structured settlement receivables, and tax lien certificates. Reasons to keep a given item here vary: consumption use (primary residence for shelter, vehicles for transportation, a closely held business for livelihood); tax or other early-liquidation penalties (retirement accounts, tax-qualified annuities, bank CDs with material early-withdrawal penalties); contractual lockups or transfer restrictions (private-fund interests, hedge fund investments, limited partnership interests, restricted stock, unvested RSUs and options, deferred compensation); or no practical market for the asset at fair value (collectibles, mineral/timber/water rights, intellectual property, promissory notes, structured settlements, tax lien certificates). Each item is tracked in the corresponding form section or, for items without a dedicated section, in the “Other Background Wealth” field. Income streams that flow from assignable assets — such as royalties, trust distributions, and rental income from non-real-estate assets — are entered into the “Other Annual Income” field (the same field used for the miscellaneous non-assignable items from Step 1(a)) as an alternative to entering the underlying asset’s market value in “Other Background Wealth” or another asset section. Per the either-or rule below, choose one representation per asset, not both.
   3. Freely investable financial wealth. Cash in bank accounts, money-market funds, and liquid brokerage holdings. This is what Ocelot℠ Core actually allocates, and it goes in the “Total Household Allocatable Wealth” field.
   EITHER-OR RULE: An asset is entered into the form either as its current market value (in the appropriate asset section) or as an income flow (in the income fields), but never both — entering both double-counts the same economic value. For most items the choice is obvious: a house is entered as market value; a Social Security stream is entered as income. For some Step 1(b) items (intellectual property generating royalties, a beneficial interest in a trust, a leased piece of equipment, a promissory note, a structured settlement, etc.), you must choose one representation and stick with it. GIFTS AND INHERITANCES: Gifts and inheritances of cash or property received are not income — they are nontaxable to the recipient under IRC §102(a) and should never be entered in the “Other Annual Income” field. They are wealth additions: cash goes into your Step 1(c) allocatable wealth, and non-cash property goes into the appropriate Step 1(b) asset section (or “Other Background Wealth” if no dedicated section applies). Re-run Ocelot℠ Core whenever a new gift or inheritance is received. (Inherited traditional IRAs, 401(k)s, and similar pre-tax retirement accounts are an exception: they are income in respect of a decedent and belong in the Retirement Accounts section.) RETIREMENT ACCOUNTS: Ocelot℠ Core models every dollar in an IRA, 401(k), or similar tax-advantaged retirement account as a dollar already invested in the Empirical Global Market Portfolio — perfect correlation with the Market. The optimizer recognizes that your retirement balances are already supplying part of your household’s risky-asset exposure, so the recommended EGMP percentage of your allocatable cash is lower than it would be without them — and lower still when those balances are large relative to your allocatable cash. To make the model self-consistent, hold the EGMP inside each retirement account (or, in any employer 401(k) with a restrictive menu, the closest available EGMP-equivalent fund — typically a broad global stocks-and-bonds blend).
2. List all of your debts, both secured and unsecured. If you have any unsecured debts (e.g., credit card debt), pay them off from your Step 1(c) wealth before using Ocelot℠ Core — the interest rate on unsecured debt typically exceeds any expected market return, so retiring the debt is a guaranteed better outcome than any risky-asset allocation.
3. List your annual household expenses (excluding payments on debts against the assets listed previously, and excluding any real-estate-related costs for properties you own — property taxes, insurance, HOA fees, maintenance, utilities, and reserves are already estimated by Ocelot℠ Core from each property’s type and current market value, and your mortgage payments are taken from the Monthly Payment you enter on each property). These expenses include such things as food, clothing, pet care, travel, entertainment, transportation fuel, personal care, etc. If you rent your residence, do include your annual rent here.
4. For the items in Step 1(b) above — the assets you legally could sell — decide which you intend to keep. In general, keep anything whose sale would:
   • require you to buy the same service in the market afterward (selling your house creates a rental obligation of comparable cost);
   • trigger punitive transaction costs (real estate typically sells with 5–8% in combined costs);
   • incur tax penalties, contractual surrender charges, or other early-liquidation penalties (e.g., surrendering a tax-qualified annuity before 59½ incurs a 10% penalty plus ordinary income tax; most annuity contracts also have surrender charge schedules in the early contract years; bank CDs typically charge 3–12 months of interest if withdrawn early); or
   • eliminate your livelihood or primary income (e.g., selling a closely held business that employs you).
   Categories Step 1(a) and Step 1(b) together — the non-assignable income streams plus the Step 1(b) assets you have decided to keep — constitute your household’s Background Assets for this optimization. They are not sold or traded, but their market exposure is accounted for in the hedging-demand calculation. Expected net proceeds from any Step 1(b) assets you decide to sell should be added to your Step 1(c) cash to form your total Allocatable (Investable) Wealth. This, combined with that of your spouse if you’re married, will be entered in the “Total Household Allocatable Wealth” field at the end of the form.
5. You should now have, for the purposes of this optimization: your Background Assets — both the non-assignable income streams from Step 1(a), whose present values Ocelot℠ Core computes internally from the Social Security earnings record, Pensions section, employment income fields, and “Other Annual Income” field, and the Step 1(b) assets you have decided to keep (real estate, vehicles, businesses, annuities, retirement accounts, indefinitely-held bank CDs, and anything entered in the “Other Background Wealth” field) — along with the debts against any of them, your Step 1(c) allocatable (investable) cash, and your annual household expenses. For you, and your spouse if you’re married, enter below in the appropriate places:
   1. Your assets and the debts against them.
   2. Your total household allocatable (investable) wealth — the Step 1(c) figure, increased by any expected net proceeds from Step 1(b) assets you have decided to sell (per Step 4). If you are married and filing separately (MFS) — or filing Head of Household while still legally married — you will also be asked to identify what portion of that total is each spouse's separate property (inheritance, gifts, pre-marital assets). These separate amounts are subsets of the household total, not additional wealth.
   3. Your income from employment (Employments section) and from any closely held business (Net Income in the Businesses section) — both drive cash-flow and tax calculations and, capitalized to present value, enter the optimization as background assets: employment income as Step 1(a) human capital, business net income as the market value of the Step 1(b) business itself.
   4. Your past earnings by year from your official Social Security Administration Earnings Record (to be found at ssa.gov). Your Quarters of Coverage will be auto-calculated from this record. If for some reason you cannot obtain your official Social Security Administration Earnings Record, then just enter your yearly past earnings as best you can from your memory, or from your records, and verify that the auto-calculated Quarters of Coverage is correct (edit the field to override if needed).
   5. Any other annual taxable income not captured elsewhere in the form, in the “Other Annual Income” field. This is a tax-driven catch-all that accepts both Step 1(a) non-assignable streams (alimony received, statutory disability benefits such as SSDI, etc.) and Step 1(b) income streams from assignable assets (trust distributions, royalties, rental income from non-real-estate assets, etc.). For Step 1(b) items, follow the either-or rule from Step 1: enter the income stream here or the underlying asset’s market value in another section, not both.
   6. The total net current value of any other Step 1(b) wealth not captured by the dedicated form sections (collectibles, precious metals, private-fund interests, cryptocurrency, mineral/timber/water rights, intellectual property, structured settlements, tax lien certificates, unvested RSUs, deferred compensation, etc. — see the field’s hint for the full list) in the “Other Background Wealth” field. Per the either-or rule from Step 1, do not also enter an income stream in “Other Annual Income” for any asset whose market value you have entered here — choose one representation per asset.
6. Enter your payment information below, then read the following documents carefully before proceeding (follow the links provided to view them):
   • Our Form ADV Part 2A and Form ADV Part 2B — we are a registered investment adviser, and these forms must be given to you to comply with government laws and regulations.
   • The User Agreement between you and us.
   By pressing the “Run Ocelot℠ Core Now” button, you acknowledge that you have read these documents and agree to be bound by the User Agreement. PLEASE NOTE: At this time, we can only offer this service to individuals who reside in California, or to advisers whose principal place of business is in California, because we are registered as an investment adviser only in California.
7. After pressing the “Run Ocelot℠ Core Now” button, your information will be submitted to our Ocelot℠ Core API for processing, and you will be billed only if Ocelot℠ Core responds successfully. Pricing depends on your payment method: $79.95 by credit card (Individual Clients), or per-call rates as low as $21.95 by API Token (RIA Clients on graduated monthly tiers; see Payment Information below). Your results will show:
   • A recommended percentage to invest in the Empirical Global Market Portfolio and the remaining percentage to invest in a risk-free asset (e.g., U.S. Treasury securities, an FDIC-insured checking or savings account, or an FDIC-insured bank certificate of deposit), based on the model’s assumptions and your inputs. The “Bank CDs” section below is only for CDs you already hold as background assets. If you use your risk-free allocation to buy a new CD, leave it out of that section — it is the implementation of your risk-free allocation, and its value will become allocatable wealth again only when you liquidate the CD (at maturity or, with a penalty, earlier). Only move it into the “Bank CDs” section if you decide to hold it indefinitely (for example, by letting it auto-renew) and treat it as a permanent background holding outside the scope of Ocelot℠ Core’s optimization.
   • The calculated dollar amounts to invest in each of a diversified set of Exchange Traded Funds (ETFs) that make up the Empirical Global Market Portfolio.
   • A Household Economic Balance Sheet showing all of your assets (background and allocatable) and liabilities within the Merton optimization framework.
   • A Household Income & Expense Summary providing a comprehensive view of your household cash flows as used in the optimization.
   To act on your results, open a brokerage account if you don’t already have one (e.g., at Charles Schwab, Fidelity Investments, etc) and buy the recommended ETFs in the specified amounts. Ask your broker how to do this.

Save and resume your work. The JSON tab includes Save Snapshot to File and Load Snapshot from Clipboard buttons that let you keep a complete record of everything you have entered as a JSON file on your own computer. Press Save Snapshot to File before leaving — you will get a small text file you can keep alongside your tax records or financial documents. The next time you want to run Ocelot℠ Core — at your annual rebalance, after a major life event, or whenever your financial situation changes — open that file in any text editor, copy its entire contents to your clipboard, switch back to the JSON tab, and press Load Snapshot from Clipboard to restore everything in seconds. You can then update only the fields that have changed and re‑run Ocelot℠ Core without re‑entering all of your information from scratch.

If you have any questions about this process, or something goes wrong, you may contact us at [email protected].

Important Disclosures

Ocelot℠ Core is a mathematical portfolio optimization tool based on Merton continuous-time portfolio theory with constant relative risk aversion (CRRA) utility. Its output depends on model assumptions that may not reflect actual market conditions, including but not limited to: the assumption that asset returns follow a log-normal distribution, that markets are frictionless and continuously tradable, that historical return and covariance estimates are reliable predictors of future behavior, and that the user’s risk preferences are accurately captured by a single risk-aversion parameter.

Investing involves risk, including the possible loss of principal. The allocations and strategies provided are based on mathematical models and historical data. Past performance of any asset class, index, or ETF is not indicative of future results. No model or formula can guarantee investment returns or eliminate risk. The output of Ocelot℠ Core should not be relied upon as the sole basis for any investment decision.

Advisory API Systems LLC does not guarantee the accuracy, completeness, or timeliness of market data used in calculations. Model outputs are sensitive to input assumptions — small changes in inputs (e.g., earnings history, asset valuations, or expense estimates) may produce materially different results.

You are under no obligation to act on any recommendation provided by Ocelot℠ Core. If you choose to implement any allocation, you are not required to do so through any particular broker-dealer or financial institution. Advisory API Systems LLC does not receive commissions or compensation from the purchase or sale of any securities or financial products recommended by Ocelot℠ Core.

Client Information

Save Snapshot to File downloads the JSON below as a small file you can keep on your own computer — a complete record of the inputs you have entered. Load Snapshot from Clipboard replaces the JSON below with whatever you have copied to your clipboard from a previously saved snapshot file (and pre‑populates the Form tab from it). Together, these let you resume where you left off — or update only the fields that have changed since last time — without re‑entering everything from scratch on each visit.