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Factors That Figure in Your Evidence-Based Portfolio

Written by Brian Puckett, CFP®, CPA/PFS, Attorney at Law.

If you're a reader of our blogs, you know we're proponents of evidence-based investing: The practice of grounding investment strategy in rational methodology.

Evidence-based investing strengthens your ability to stay on course toward your financial goals by understanding and using the factors that drive investment returns.

A body of research dating back to the 1950s has identified three factors that have formed the backbone for evidence-based portfolio construction:

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The Essence of Evidence-Based Investing

Written by Brian Puckett, CFP®, CPA/PFS, Attorney at Law.

In our most recent blog, "What Drives Market Returns?" we explored how markets deliver wealth to those who invest their financial capital in human enterprise. But, as with any risky venture, there are no guarantees that you'll earn the returns you're aiming for, or even recover your investment.

This leads us to why we so strongly favor what is known as evidence-based investing. Grounding your strategy in a rational methodology helps you best determine your financial goals—and it helps you stay on course toward those goals even when your emotions threaten to take over.

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What Drives Market Returns?

Written by Brian Puckett, CFP®, CPA/PFS, Attorney at Law.

In last month's blog, "Get Along, Little Market," we discussed the benefits of diversifying your investments to minimize avoidable risks, manage those that are unavoidable when we're seeking market gains, and better tolerate market volatility along the way.

Our next topic: understanding how to build your diversified portfolio to effectively capture market returns. To do that, we must understand where those returns actually come from.

Market returns represent something deeper than the ups and downs of stocks and bonds. They are our compensation for providing the financial capital that feeds the human enterprise going on all around us.

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Get Along, Little Market

As we discussed in our previous blog, “Managing the Market’s Risky Business,” properly diversifying your investment portfolio helps to minimize unnecessary risks and better manage those that remain. But diversification provides us with an additional benefit: It helps to create a smoother ride toward our goals.

Like a bucking bronco, near-term market returns are characterized by periods of wild volatility. Diversification helps you “break” the horse. That’s important because, as any rider knows, if you fall out of the saddle, you’re going to get left in the dust.

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Managing the Market’s Risky Business

Written by Brian Puckett, CFP®, CPA/PFS, Attorney at Law.

In last month's blog post, "The Full-Meal Deal of Diversification," we described how effective diversification means more than just holding a large number of accounts or securities. It means having efficient, low-cost exposure to a variety of capital markets around the globe. Today, we'll expand on the benefits of diversification, beginning with its ability to help you better manage investment risks.

Most of us learn about risk even before we have the words to describe it. Our lessons start when we, say, tumble into the coffee table, or reach for that pretty cat's tail. Investment risks, alas, are a little more complex. They come in two broadly different varieties: avoidable, concentrated risks and unavoidable market risks.