Evidence-Based Investor is a hub to help you gain insights and to help you plan your financial journey. Whether you are advancing in your profession or are already an expert in your field, we are here to make your life easier.
The elimination of pensions has shifted financial responsibility from employers to individuals. The result? A higher demand for personal financial planning services. The financial service industry has predominantly answered this demand by selling new investment products to entice you to believe you can beat the market. Research has shown, that left to your own devices, you are predisposed to make emotional choices which result in cognitive financial mistakes. Without a thorough understanding of financial theory — including an understanding of the emotional component of investing and your own long-term goals — you are prone to costly financial mistakes.
The shortfall between market returns and your personal returns is most commonly demonstrated by the behavior gap. The behavior gap is illustrated below:
The overriding impulse that we as investors have is to trying to beat the market. This thinking is a good idea in many endeavors, but a disaster in investing. The odds are stacked against you. Not only do you have to be right once when you sell, you also have to be right when you buyback. This equates to a 25% chance of success. But how to consistently predict the unpredictable? You cannot. Anyone who tries to tell you otherwise is likely trying to sell you a product.
Rather than chasing last years’ returns or picking the right stock, we start with premise that over the long term markets work. Although we continue to study markets, we believe that trying to speculate on short-term market fluctuation is a fool’s game. We play a different game where the numbers are skewed in our favor. Academic studies have consistently shown that risk and reward are derived from asset allocation. We believe in evidence-based investing that is rooted in academic research. We believe successful investing revolves around understanding your risks and capturing reliable sources of expecting returns from that risk.
If you are reading this, you have started your research. You understand that your finances play a major role in this process; yet, you may not know the requirement or how to take the next step to begin the process. We believe you should start by focusing on your long-term financial purpose. By defining and quantifying your financial purpose, you will have a greater impact on those who are counting on you to make appropriate decisions. Developing your financial philosophy and purpose will align your personal economy, and in turn, will help you make smarter financial decisions.
Online investment information is available, but many of those resources do not focus on the decisions you make with your time and money, nor do they take into account how your financial decisions align with your life. Our goal is to tie these things together. Transform career success into financial freedom.