The Importance of Evidence Based Investing
The Importance of Evidence Based Investing
With more people than ever before turning their hand to investing, supporting people in making responsible financial decisions is of high priority
When choosing to build an investment portfolio, strategy is a key consideration to be made, as your choice of investment approach can have a huge impact on the long and short-term success or failure of your investments. In addition, the investment landscape can be highly overwhelming for the new investor, making it challenging to select the right approach for you. In this blog from Hansford Bell, we discuss the importance of evidence-based investing – noting what it is, things to consider before starting and its key benefits.
Here at Hansford Bell, we are experts in financial planning. Our wealth management services include investment support – starting with a review of your current investment portfolio, going on to discuss your parameters, attitude to risk and wider financial goals. For more informative guides related to matters of financial planning, visit our blog. Existing articles include Changes to Pension Rules 2024, The Impact of the Gender Pension Gap and Why You Need Bonds in Your Investment Portfolio.
What is Evidence Based Investing?
Evidence based investing is an investment strategy rooted in scientific data, whereby all investment decisions are guided by relevant research and reliable sources. Evidence based investors work to stay informed regarding long-term observations of markets and how they work, based on the understanding that this research offers their investments a more secure foundation.
Often, other types of investors find themselves attempting to predict the future, chasing peaks for seemingly high-value stocks. This is commonly referred to as ‘active investing’, whereby a fund manager will try to ‘beat’ the stock market’s average return, guessing the right time to buy and sell certain bonds, shares and other assets based on what appears to be happening in the market. Evidence based investment takes a different approach in acknowledging that financial markets are efficient, and making accurate predictions of this kind can be difficult. Evidence based investing typically includes investing in low-cost index funds or exchange-traded funds that track market indexes.
When it comes to Evidence-based investing, the selection of data sources is of vital importance. The sources that are relevant to your investment will likely be contingent on the areas you wish to invest in. Valuable sources of information might include government agencies, financial statements, company representation, analyst reports and stockbrokers to name a few.
Things to Consider Before Building an Evidence Based Investment Portfolio.
News is Not Always Accurate
When collecting evidence and data to inform your investments, it is recommended that investors be mindful of their reference to mainstream news outlets within their research, as to avoid data impacted by biases or inflated figures. It is always important to back your research up with credible sources.
Emotions and Investments Don’t Mix
Being mindful of emotional investing is another key area of focus when it comes to evidence-based strategy. An investor mustn’t allow investments that seem appealing to impact their rationality. Investment decisions should not be based on a fear of missing an opportunity – impulse investments pose a larger financial risk than those backed by data.
Tap into the Right Sources
As previously mentioned, selecting the right sources is an essential part of evidence based investing. Many government agencies have public resources full of useful information and investment data. In addition, the support of industry experts such as Hansford Bell can offer you peace of mind that your investment decisions are supported by the relevant data. Further still, it is even possible to hire a research analyst to collect data for you.
Look Beyond the Numbers
While numbers do tell us something about the value of stock, there may be more pieces to the puzzle. Evidence based investment strategies encourage investors to look beyond the numbers and seek out any hidden issues or concerns related to a given investment.
Patience
As will many financial matters, time is key to evidence based investing. An evidence based portfolio is a long-term strategy that will require an investor to be patient and learn from their mistakes. Again, seeking advice from industry professionals such as Hansford Bell can offer guidance and reassurance for an investor at any point on their investing journey.
Independent Financial Life Planning Services for Self-Employed Workers
Benefits of Evidence Based Investing
Build a more secure portfolio
A key benefit of evidence-based investing is that it allows investors to build a secure and stable financial future that grants them greater access to their long-term financial goals as investors. Taking this longer-term approach allows investors to benefit from compounding over time. The long-term experience granted by this approach is also likely to refine the investor’s knowledge of which investments pose the longest-term benefits.
Freedom from Fees
The slower and more considered pace of evidence-based investing also frees an investor from the high fees and hidden costs associated with active management and trading. These lower costs sometimes mean that evidence-based investing generates higher returns
Fewer losses from impulse investments
As previously noted, many alternative methods of investment require investors to detect peaks and troughs in their target markets, investing at what they consider to be the ‘ideal’ time. The ever-changing status of the stock market can generate pressure around these choices that may ultimately result in an ill-considered investment. The numerous stages of research required as a part of an evidence-based strategy reduce an investor’s susceptibility to making investments based on these heightened emotional states.
Reduced Stress
Similarly, while active investment styles require an investor to make frequent high-risk decisions within a limited time frame, evidence based investments free investors from the stress of these high-pressure scenarios – offering benefits to wider mental wellbeing.
Financial Advice with Hansford Bell
Hansford Bell are financial specialists with a personal approach. We take the time to get to know our clients and help them understand what their financial needs and goals are – supplying the necessary support to help them achieve these goals. Our range of services include Wealth Management – within which our professional team will offer specialist investment advice tailored to your circumstances. Looking for something else? Our other services include Financial Life Planning, Cash Flow Planning and Estate and Tax Planning. Our strategy combines simplified, straightforward tips and guidance with cutting-edge technology and a comprehensive understanding of your situation. Our services help you focus on your finances, so you can focus on living your life. Keen to speak to a member of our team? Get in touch today.
A Fresh Approach to Financial Planning and Advice.
Hansford Bell aren’t your average team of financial specialists. We take the time to get to know our clients and help them realise what they want from their life, whether that’s a personal ambition or a financial goal.
Our planners are highly experienced and know the industry inside-out. We combine simplified, straight-forward tips and guidance with cutting-edge technology and a comprehensive understanding of your situation. We focus on your finances, so you can focus on living your life.
Want to know more? Talk to us today and we can start making that dream future a reality!
