Evidence-Based Investing

In the fast-paced world of finance, navigating the markets can sometimes feel like a rollercoaster ride. With constant fluctuations and unpredictable trends, it’s easy to succumb to the allure of speculative investments or the latest market buzz. However, there’s a tried and tested approach that stands out amidst the noise – Evidence-Based Investing (EBI). Buckle up as we embark on a journey to discover the key principles and advantages of EBI, a strategy that has been lighting the path to financial success for savvy investors and a strategy that we apply in Metis Ireland.

Building on Solid Ground: The Foundation of Evidence-Based Investing

At the heart of Evidence-Based Investing lies a commitment to rigorous research and data-driven decision-making. Instead of relying on gut feelings or following the crowd, EBI practitioners rely on factual evidence to shape their investment strategies. This approach is rooted in the belief that historical data and academic research provide valuable insights that can guide investors toward more informed and sustainable choices.

Diversification: Spreading Your Wings for Financial Freedom

One of the fundamental beliefs of EBI is diversification. By spreading investments across different asset classes, industries, and geographic regions, investors can mitigate risk and enhance the potential for long-term returns. This strategy helps to cushion the impact of market volatility and reduces the likelihood of substantial losses, creating a more resilient and stable portfolio.

An image of a typical global diversified equity fund (Source: Dimensional Fund advisors);

Discipline in the Face of Market Turbulence

In the world of investing, emotions can be a powerful force. Fear and greed often drive impulsive decision-making, leading to poor investment choices. Evidence-Based Investing, however, advocates for discipline and a long-term perspective. By sticking to a well-thought-out plan based on solid evidence, investors can avoid the pitfalls of emotional decision-making and stay on course even during turbulent market conditions.

Credit/Source: Carl Richards @behaviorgap & www.behaviorgap.com

You’ll often hear us in Metis Ireland say “Stick with the Plan”. A recent example of this was during the Covid-19 Pandemic. Stock markets fell by 30%+ in March 2020 but recovered by the end of the year to finish on an all time high. Sticking with the plan and not being out of the market, meant our investors captured the gains in the second half of 2020.

Low-Cost, High-Value: The Beauty of Passive Investing

Evidence-Based Investing champions the use of passive investment strategies, such as index funds and exchange-traded funds (ETFs). These options often come with lower fees compared to actively managed funds, allowing investors to keep more of their returns. The beauty of passive investing lies in its simplicity – by tracking market indexes, investors can achieve broad market exposure without the need for constant rebalancing, guesswork or complex strategies.

The Enduring Power of Compounding

Compounding is the magic wand that transforms small, consistent gains into substantial wealth over time. Evidence-Based Investing recognises the power of compounding and encourages investors to stay committed to their long-term goals. By reinvesting returns and letting time work its magic, investors can unlock the full potential of compounding and watch their wealth grow exponentially.

Conclusion

Evidence-Based Investing isn’t just a strategy; it’s a philosophy that empowers investors to make informed decisions, withstand market volatility, and build a robust financial future. By embracing the principles of rigorous research, diversification, discipline, and low-cost investing, individuals can navigate the complex world of finance with confidence and optimism. So, here’s to the journey of Evidence-Based Investing – a path that leads to financial success, one evidence-backed decision at a time!

This is our investment philosophy at Metis Ireland. It has always been our investment philosophy and we cannot see any reason why this will change any time soon. This strategy has helped our existing client families get their best Return on Life. If you would like to embark on a similar journey, please get in touch.

Paddy O’Halloran

Head of Finance