What are the benefits of evidence-based investing?
It has been proved time and again that traditional means of investing (active investment management) do not outperform the benchmarks, even over long periods. Furthermore, financial companies tend to design and sell high-priced products and these higher fees negatively impact on a portfolio’s performance.
Add to this a reliance on past performance (when choosing a fund manager), poor market timing (which hardly ever works), and behaviour-based decision making (generally to the investors own detriment), and you can see why many people fail to achieve their investment goals.
With evidence-based investing the asset allocation within a portfolio is determined by an investor’s specific goals and time frames, and influenced by his or her tolerance for risk. An evidence-based investment will be broadly diversified which means your portfolio should contain equities and bonds (both domestic and international), as well as cash.
By using ETFs, it will also be cheaper and more tax-efficient than actively managed funds which results in higher returns. Evidence has shown that evidence-based (passively managed) funds outperform actively managed funds over the long-term.