An Introduction to Evidence-Based Investing – Part 2

Read the first part here: An Introduction to Evidence-Based Investing – Part 1

It’s not hard to see why EBI isn’t as popular as traditional investing. A disciplined, long-term approach that might garner a steady return of 6 or 7% a year is easily overshadowed by exciting reports of a stock that would have snagged you a 5,000% return, or how so and so made a ton of money in a week with this one obscure stock. What they neglect to mention is that even those which may be real are one-off fluke events that were inherently unpredictable. Often, they involve extremely volatile stocks that are just as likely – if not more so – to evaporate your invested capital. Like playing the lottery, for every one person who gets lucky, thousands (or millions) more may incur substantial losses.

While much less dramatic, many established banks and active fund managers also operate on similar principles. They highlight their experience and expertise in being able to identify the best stocks to invest in and the best times to enter or exit the market. Yet, as Dalbar and countless more researchers have demonstrated, conventional active management consistently produces subpar results, falling below the market in their attempts to beat it. In addition, the high fees investors often have to pay further erode returns. After all that, the majority of funds do not last beyond 15 years, with many having far shorter lifespans.

We prefer to keep things simple and costs low. Capital markets have always grown over the long term (a fundamental by-product of capitalism), and even periods of major financial devastation have their effects fade after at most 15 years. In the history of the stock market, investing with the index for longer than that has always reaped positive returns in the end. It is theoretically possible that a disaster of unprecedented magnitude may break this pattern and wipe out your savings, but you’d likely have more important things to worry about in such an apocalyptic event.

Until then, EBI will give you a much better likelihood of achieving financial security without undue stress and fretting, freeing you to concentrate on the things that truly matter in life, and work towards a retirement without fear of destitution.

Go back to homepage

IMPORTANT NOTES: All rights reserved. The above article or post is strictly for information purposes and should not be construed as an offer or solicitation to deal in any product offered by GYC Financial Advisory. The above information or any portion thereof should not be reproduced, published, or used in any manner without the prior written consent of GYC. You may forward or share the link to the article or post to other persons using the share buttons above. Any projections, simulations or other forward-looking statements regarding future events or performance of the financial markets are not necessarily indicative of, and may differ from, actual events or results. Neither is past performance necessarily indicative of future performance. All forms of trading and investments carry risks, including losing your investment capital. You may wish to seek advice from a financial adviser before making a commitment to invest in any investment product. In the event you choose not to seek advice from a financial adviser, you should consider whether the investment product is suitable for you. Accordingly, neither GYC nor any of our directors, employees or Representatives can accept any liability whatsoever for any loss, whether direct or indirect, or consequential loss, that may arise from the use of information or opinions provided.

GYC Perspectives

Markets are often irrational. Even among experts, forecasting does not consistently work. We instead believe in Evidence-Based Investing (EBI), which uses decades of empirical data and the greatest ideas in financial science to optimise investment outcomes. No market predictions, no forecasts, no emotions. All those things rely on gut-feel and intuition that cannot be consistently replicated.

Here, we share with you the evidence on why EBI works and why forecasting doesn't, as well as articles on topics such as behavioural finance to help you become better investors. New here? You can start with this introduction to EBI. Happy reading!

© 2017-20 GYC Financial Advisory Pte Ltd | Co Reg No 199806191K