What is Evidence Based Investing?

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(Hint: It’s the Evidence That Counts)

Evidence-Based Investing

vs.

Traditional Active Investing

Long-term market history

Near-term market forecasting

Peer-reviewed academic evidence

“Expert” opinions

Practical application

Speculative venture

Patient participation

Rapid reaction

How Do Traditional Active (TA) and
Evidence-Based (EB) Investors Differ?

THEY SEE THE FUTURE DIFFERENTLY

  • TA investors believe they can successfully predict when and how to trade on breaking news.
  • EB investors understand near-term market swings are unpredictable; they ignore the “noise.”

THEY WORK ON DIFFERENT TIMELINES

  • TA investors feel a sense of urgency to make the “right” calls to beat the market.
  • EB investors assume that time is on their side; they give their plan time to grow.

THEY ARE GUIDED BY DIFFERENT DETERMINANTS

  • TA investors act on “expert” opinions (which are vulnerable to biases, blind spots and changeable conditions).
  • EB investors are guided by peer-reviewed academic inquiry (for “steady as she goes” resolve).

THEY DEFINE “SUCCESS” DIFFERENTLY

  • TA investors define success as outperforming others or making a lot of money.
  • EB investors define success as being able to comfortably fund their personal financial goals.

THEY USE RISK DIFFERENTLY

  • TA investors don’t distinguish between market risks (factors that are expected to yield extra returns) and concentrated risks (which just add more risk).
  • EB investors manage market risk factors (and their expected returns) and diversify away concentrated risks.

THEY CONSIDER COSTS DIFFERENTLY

  • TA investors focus on cleverly timed trades over the costs, commissions and taxes they incur.
  • EB investors focus on minimal trading, understanding that the costs involved are among the biggest drags on their end returns.

Bottom Line …

EVIDENCE-BASED INVESTORS APPROACH INVESTING DIFFERENTLY

  • TA investors try to beat the market through clever stock-picking and market-timing.
  • EB investors participate in the market to earn expected long-term returns according to time-tested academic evidence, their personal goals and their individual risk tolerances.

That’s why, when it comes to your time, your money, your future 

AND YOUR FAMILY … we choose EVIDENCE-BASED INVESTING.

Gardner Sherrill, MBA, CFP

Gardner is a CERTIFIED FINANCIAL PLANNER and principal of Sherrill Wealth Management in Bradenton, Florida. He has spent 20+ years in the wealth management field helping families negotiate the various obstacles and opportunities that retirement provides them. Read More

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