In many ways, our fee-only approach to planning and Evidence-Based Investing put us squarely on the outside of personal finance. That’s ok. The world has slowly but surely been moving in our direction for a number of years. The substance of our philosophy has changed very little over time. We believe it works. We see the world differently.
My Favorite Football Outsider
I have always liked outsiders. One of my favorite outsiders is Mike Leach, the head football coach at Washington State University. Leach is the only Division 1 head coach with a law degree and is a fairly close to a modern day “Renaissance Man.” His press conferences delve into a wide range of topics most football coaches know little about. He’s authored books about Apache General Geronimo and Pirates, Swing Your Sword .
Coach Leach is a maverick and has influenced sports in general and his players specifically in countless ways. Yet, his head coaching gigs at Texas Tech and Washington State don’t put him on the inside. I suspect he likes it that way. Being on the outside sometimes allows one to influence change in a positive way that might be impossible as an insider.
Don’t Invest Like an Insider
The “inside way” or conventional way of investing, through conflicted brokers using expensive products, has not served investors well. Investing in hot stocks or using the latest strategy is reactive. As we repeat to clients often, long-term financial goals are achieved through action, not reaction.
The method most people use to invest today is little changed from decades ago. For the main, investors use a combination of impulse and intuition to make investment decisions. This rarely works out well.
Investor psychology and behavior are powerful forces. The conflicted product pushers (brokers, banks, and insurance firms) are devilishly good at designing investments to take advantage of the prevailing mood.
Related: The Most Dangerous Time of the Year for Investors
Quiet the Noise of Financial Media
The conventional way of investing follows the noise, the tips, the hunches. The cycle repeats itself in good markets and in not so good markets alike. The financial media is also conflicted because no one wants to read or see anything that doesn’t contain at least some hyper-sensation.
Every morning when I am dressing for work, I hear the commentators on Bloomberg start questions with the words, “Don’t you think?” That’s really not a question at all. Instead, it's trying to guide commentary towards a predetermined conclusion.
Because many investors have a relatively limited understanding of personal finance, these commentaries end up carrying significant weight.
Listen to the Evidence
Since our overarching goal is to improve real-life financial outcomes, we follow the approach that has proven itself over the long term. In many ways, Evidence-Based Investing is the “outside way.” Instead of relying on methods that have demonstrated low odds of success, Evidence-Based Investing trusts markets to set prices.
With Evidence-Based Investing, primary emphasis is placed upon relevant dimensions of risk that point to differences in returns. The result is we are able to focus on things that really impact the financial future of our clients.