Evidence Based Investing for your Retirement Security

Written on the 6 December 2022 by Parkside InvestorPlus

For many people, investing for retirement is viewed as a ‘throw of the dice’ rather than a planned and meticulous approach towards financial security.

Why?  Simply because of the myriad of changing circumstances in the investment landscape; interest rates, recession, inflation, global events – the list goes on.

However, for the those of us who are more disciplined and are willing to trust the data and science, there is a way to reduce the uncertainty of retirement investment and security.

And this is through evidence-based investment strategies.

Progress in science through tried and tested evidence is clear in virtually every aspect of our lives.

Very few people can doubt the size and impact of change that has resulted.

However, this same philosophy of science and data-based analysis has lagged the investment community – particularly investing for retirement.

Until now.

Enter evidence-based investing.

What is Evidence Based Investing (EBI)

Evidence-Based Investing (EBI), is a well-organized investment approach that uses historical data, research, and collective knowledge of risk and return to maximise the likelihood of reaching your desired outcomes, while minimising risk and reducing frictions from high costs and taxes that can negatively impact your desired outcomes.

While this sound like a theoretical finance concept reserved only for a handful of savvy investors, nothing could be further from the truth.

EBI is not just for the prudent investor, rather, it’s equally relevant to everyday people planning for their retirement.

The difference between Evidence Based Investing and Conventional Investing

As compared to more conventional investment approaches that are commonly driven by emotion, instant satisfaction, and market timing, the Evidence-Based Investing approach relies on wisdom, facts, data, and time spent in the market.

The characteristics of conventional investing include;

• Seeing markets as an opponent for them to outsmart.
• Conventional investors rely on feelings over facts.
• Conventional investors actively look for data and narratives that align with their own feelings and thoughts – to justify their investment decision making ideas.
• And most crucially, the conventional investor compounds their mistakes through attempts at timing the market.

The Evidence Based Investor Philosophy

• The evidence-based investor views markets as an ally and appreciates their collective wisdom.
• The evidence-based investor utilises facts and emphasises process over outcome.
• The evidence-based investor welcomes opposing data and reserves the right to change their mind when necessary.
• The evidence-based investor understands compound interest and thus the importance of time in the market.

At Parkside InvestorPlus, we are a long-time believer in the philosophy of evidence-based investment, and in particular the Dimensional Fund Advisers factor based funds.

For more information on maximising your investment portfolio, contact us at (02) 98994899.