4 Things You Need to Know About Evidence-Based Investing
May 3, 2016
Science has produced many tremendous advances, from lifesaving medical treatments to instantaneous communication. Historically, though, science has had little influence on investing. Instead of keeping pace with advancements in modern portfolio theory along with historical and statistical evidence, investors and money managers often rely on conventional wisdom and flawed assumptions. How can investors sort through the vast amount of available data to maximize after-tax return and minimize risk?
To expose the many shortcomings of the conventional approach and provide a road map to investing success, our white paper, Evidence-Based Investing (EBI), illustrates the methods and conclusions of EBI. The goal of EBI is to maximize after-tax returns for the individual investor while minimizing risk and protecting portfolios from market downturns. Approaching a problem or a set of questions from an evidence-based point of view has profoundly affected the field of medicine, and now investing. EBI offers a way to answer investment questions in a systematic, analytical, and scientific manner as described in the four steps below.
- The conventional investment approach rests on spurious assumptions and false hopes. Whether one seeks investing success by picking stocks, timing the market, or by picking skilled money managers, the costs of these speculative techniques are greater than any gains derived by their practice.
- Meaningful questions need to be formulated. That means asking questions that can be proven or disproven with reference to evidence. The questions must also have significance for the individual investor. This requires the experience and knowledge of an objective financial advisory team.
- Once the right questions have been asked, evidence can be applied to solve problems and integrate both advisor expertise and the individual investor’s values and goals. The implementation of the portfolio includes several key areas: investment selection, rebalancing, and managing taxes.
- The last step, monitoring for effectiveness, is a very important part of the process. We refer to it as “robust investment oversight” which we believe significantly enhances investment results by eliminating needless risk. The Investment Committee is at the helm of Savant’s investment management and is responsible for overseeing all investment-related activities including the firm’s investment philosophy and process, forward-looking return expectations, asset allocation, investment selection, ongoing due diligence, and implementation.
COMING SOON! The third edition of our Evidence-Based Investing white paper will be available in May 2016. Email EBI@savantcapital.com to request your copy.