We have a deep commitment at our firm to what is known as evidence-based investing. When it comes to helping our clients build and protect their wealth, we think data win out over intuition every single time. But what exactly does evidence-based investing mean, and why does it matter?
In a nutshell, we stand for more logic and less guesswork when it comes to investing your assets. Traditional active investors try to beat the market through stock-picking and market-timing. By contrast, evidence-based investors participate in the market to earn expected long-term returns according to time-tested academic evidence, personal goals and individual risk tolerances.
These approaches differ in critical details. For starters, each side sees the future differently. Traditional active investors believe they can successfully predict when and how to trade on breaking news. Evidence-based investors understand near-term market swings are unpredictable. They ignore the “noise.”
They work on different timelines, too. Traditional active investors feel a sense of urgency to make the “right” calls to beat the market. Evidence-based investors assume that time is on their side; they give their plan time to grow.
They also have different definitions of success. Traditional active investors want to outperform others or make a lot of money – or both. Evidence-based investors define success as being able to comfortably fund their personal financial goals.
And they think about costs differently. Traditional active investors are caught up in trading at the “right” times. The costs, commissions, and taxes they incur are secondary considerations. Evidence-based investors try to keep trading to a minimum, because they know that trading expenses drag down returns.
There are, of course, other differences. What it boils down to is that evidence-based investing is a highly disciplined approach that draws on the best evidence available to help you design and build your portfolio. We’re not interested in the latest fads or the hottest trades. We believe that market-timing fails over the long-run as a money maker.
We know from decades of experience that the concept of investing for the long run resonates with many people. If it makes sense to you, too, we hope to hear from you. We’d welcome the opportunity to help you map out an evidence-based strategy for securing your financial future.