What is Evidence-based Investing?

At Blackdown Financial we use an evidence-based investment philosophy for the portfolios we recommend.

But what does Evidence-based Investing mean? We hope the following is helpful:

Evidence-based investing (EBI) is an investment approach that relies on robust academic research and practical evidence to shape investment decisions. It emphasises using data and scientific studies to inform investment strategies, rather than solely relying on speculation, market trends, or individual opinions.

The key principles of evidence-based investing include:

Diversification: Creating a well-diversified portfolio across various asset classes (such as shares & bonds) to reduce risk and achieve more consistent returns over time.

Efficient Markets: Accepting the concept that markets are generally efficient, meaning that prices already incorporate all available information. Therefore, attempting to consistently “beat the market” through selecting individual stocks or timing the market may not be a reliable strategy.

Risk Management: Recognising that there is a direct connection between risk and return. Investors should understand and manage their preferred level of risk and be aware that higher potential returns often come with higher risk.

Cost Efficiency: Minimising investment costs, such as management fees and trading charges, as these can erode overall returns over the long term.

Behavioural Considerations: Understanding the impact of behavioural biases and emotions on investment decisions. Evidence-based investing encourages investors to remain disciplined and avoid making impulsive choices based on short-term market fluctuations.

Long-Term Perspective: Focusing on long-term investment goals and strategies, rather than reacting to short-term market volatility.

Evidence-Based Research: Relying on academic research and historical data to inform investment decisions, instead of relying on speculative predictions or market-timing strategies.

Evidence-based investing is often associated with passive investing, where investors typically invest in low-cost index funds that aim to replicate the performance of a specific market index. This approach contrasts with active investing, which involves attempting to outperform the market through frequent trading and stock selection.

Overall, evidence-based investing aims to offer investors a more methodical and disciplined approach to managing their portfolios, grounded in a strong foundation of research and data analysis, specifically tailored for the UK context.

As always if you have questions, please do let us know.

Warm Regards


Neil Rossiter APFS, Chartered MCSI, CFPCM

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