Everything You Need to Know About Evidence-Based Investing:

You Deserve The Better Way to Invest

Evidence-Based Investing (“EBI”) is not a topic that is well known to many investors. And of those who have heard of it, only a few understand it.

EBI is patterned along the lines of Evidence-Based Medicine, which is designed to optimize decision-making for patient care. Stressing the use of evidence from well-designed and accepted research has shown to lead to a better patient outcome.

According to the Centre for Evidence-Based Medicine at the UK’s University of Oxford, “Evidence-Based Medicine is the conscientious, explicit, and judicious use of current best evidence in making decisions about the care of individual patients.” That approach to informed decision-making has spread to other fields, such as investing.

EBI is then the conscientious, explicit, and judicious use of current best evidence in making decisions about the implementation and management of an investor’s portfolio. This would be a major change for many investors who have been using a conventional investing methodology.

Why is this important? Perhaps reviewing the history of investing will provide a broader perspective.

The History of Investing

The first instance of investing was the purchase of land, which was farmed for personal use. Later, it was investing in your own small business. Put another way, you were investing in yourself. Later, with stocks, investing allowed diversification by buying into an ownership position of other person’s business. Or with bonds, investing was done by loaning others money by purchasing their debt.

In order to better know which stock or bond to buy, an investor would go to a “broker-dealer.” The broker-dealer would provide a recommendation and then complete the transaction, of course, for a commission.

In time, mutual funds were developed, where the fund manager would decide (based on his or her “expertise”) what to buy and sell within the mutual fund. Since their inception, broker-dealers have loved the concept of the mutual funds. They require only a little bit of homework on the part of the sales person (since the fund manager already did most of it) and they generally drew a big commission. In fact, many broker-dealers started their own mutual funds. In this way, they not only received the commissions on the sale but they also captured a share of the management fee, as well.

The strategy of the mutual fund managers was to buy and sell stocks and bonds with some frequency to “beat the market.” This approach often caused high trading costs, was not tax efficient and was expensive due to the hiring of “experts” to predict what to buy and sell. This active management style seldom beat their benchmarks over time but it did allow many financial services companies to get rich.

The “under performance of the benchmarks” and associated high costs led to the development of index funds, most notably by Vanguard. An index fund holds the stock of those companies listed within that index and in their predetermined percentage.

For example, the Dow Jones Index Fund would hold the 30 stocks that comprise the Dow Jones Industrial Average and in the percentage as indicated by the index. These index funds were not designed to beat the market but rather to capture the returns that the market provided while keeping costs low.

While index funds are good, there are some specific shortcomings. The biggest problem occurs when the index is reconfigured. Then, all of the financial services companies that offer that specific index fund will have to sell the same stocks on the same day and then they must all buy the same incoming stock. That results in a depressed stock price (of the stock sold) and an inflated stock price (of the stock bought), which may or may not be warranted.

The above snapshot would be described as “conventional investing.” Most financial services companies and their employees operate under this approach and are governed by the “suitability standard.” This allows the companies to put their interests (i.e. their products and associated fees) ahead of what is really in your best interest.

There is a better way than the conventional approach and it is EBI!

Evidence-Based Investing

To start, we know what does not work well with conventional investing:

• The vast majority of active money management fails to out-perform benchmarks over long time frames.
• Financial services companies are good at designing and selling high priced products that are often subject to conflicts of interests under the suitability rules.
• Higher investment fees negatively impact performance.
• Past performance is not a good method for selecting a money manager.
• Market timing seldom works, over time.
• When it comes to investing, investors tend to make behavioral-based decisions and, quite often, mistakes.

The well-founded evidence which we know does work includes:

• Your portfolio’s asset allocation should be based on your investing goals, timeframe and influenced by your risk tolerance and risk capacity.
• Your portfolio should be highly diverse, containing stock (US and non-US), bonds, REIT’s and cash equivalents.
• Tax efficiency helps boost portfolio returns.
• Low cost investing leads to higher returns.
• Small stocks add greater return, over time, for the risk taken.
• Value stocks offer a return premium, as well, over time.
• Passive fund management out-performs active management, over time.
• As an investor seeking advice, your interests are better served under the Fiduciary Rule rather than the suitability rule, which is common with conventional investing.

This “Best Evidence” for proper investing emanates from academia and professors such as Harry Markowitz* at City University, New York, Myron Scholes* and William F. Sharpe* at Stanford, Robert C Merton* of MIT and Harvard, Merton Miller* and Eugene Fama* of the University of Chicago, Kenneth French of Dartmouth College, as well as others. (* designates the Nobel Prize in Economics)

As you might expect, the concept of “Best Evidence” is not one disseminated by the financial services companies such Merrill Lynch, Morgan Stanley or Fidelity. Nor does it come from insurance companies or others that sell a product.

“Best Evidence” is also not a topic found in articles published by Money Magazine or Kiplinger’s. And it won’t come in the form of advice from television’s Jim Cramer or any of his kind. Of course not; those are all intended to maximize advertising dollars and “Best Evidence” simply does not bring in advertising money.

If you want to improve your outcome when investing for a successful future, you may need to change your investing approach. Switch from the conventional investing methodology (often filled with conflicts of interest) to one that is truly in your best interest, the Evidence-Based Investing approach!

Financial Planning for Young Professionals: Free eBook

As a young professional, at the beginning of your career, you have a unique opportunity to create a stable financial foundation on which to build your financial life. The money traits, savings, and spending habits that you adopt now will shape your financial future, all the way into retirement and beyond.

The financial issues you face as a young professional are far different than those of an individual getting closer to retirement age. However, there is little in the way of sound written advice on the financial issues you might need to consider, so we’ve written an eBook that covers most common financial planning topics.

Our free eBook contains eight chapters that cover: Managing Current Spending, Debt Management, Investing and Investments, Retirement Planning, Estate Planning, Insurance, Employee Stock Programs, and Topics for Young Families. Each chapter introduces the topic, defines the important aspects for young professionals, and provides general recommendations on how to handle common decisions and problems.

Our goal is for you to have enough knowledge and education to begin to make better financial decisions and to learn to balance current needs with future goals. Later, as your assets grow and especially as financial matters become more complex, professional help may very well be needed but for now, with this basic understanding, you can create a good foundation for your financial future.

Click here to download the free eBook “Financial Planning For Young Professionals.”

Financial Well-Being for Widows and Widowers: Free Workbook

The death of your spouse or partner is one of the most difficult challenges of your life. No matter if you are a widow or widower you will be required to make a series of decisions to try to regain balance in your life.

There have been numerous books written to help you cope with your grief, emotions and social adjustments. There does not seem to be a concise “how to” workbook that outlines what needs to be done to help you keep track of your progress in making the necessary changes.

As a financial planner and advisor, I would not attempt to address the necessary steps to regain your emotional, social or physical well-being but we have drafted a workbook for those that have lost their partner/spouse to help you to regain your “financial well-being”.

There are two goals for this workbook. The first is to provide a structure or methodology so that you can regain your financial well-being and have financial peace of mind. The second is to help you to avoid making poor financial decisions, which can occur without having a good understanding of your current financial situation and what you will need in your future.

Hopefully this will help guide you through a process to better understand what needs to be done now as a result of your loss, help guide you to “getting it done” and lead to a better understanding of where you currently are at from a financial standpoint and how to best secure your future financial well-being.

Click here to download our free workbook “Securing My Financial Well-Being.”

Estate Planning Documents: Free Download

Every adult with any kind of asset needs the protection provided by proper estate planning documents. The best and “safest” place (to ensure that your plans are adhered to exactly) to obtain these documents is from an estate planning attorney who can provide you with appropriate and sound legal advice.

For individuals turning 18, and with no dependents, no real estate and very little in the way of assets, the purchase of estate planning documents can be expensive. Still, having estate planning documents is in your best interests and the best interests of your future heirs.

The following websites provide standardized estate planning documents for residents of California. Residents of other states might find similar websites, appropriate for where he or she lives.

If you choose not to use an Estate Planning Attorney, please follow the relevant instructions for the proper completion of the following documents. Once complete, be sure to sign the documents in front of a notary and then provide a copy of the documents to those individuals named within.

Power of Attorney – Allows control of your financial matters if you cannot.

Advanced Healthcare Directive – Allows others to make healthcare decision if you cannot.

Will – Passes your assets on your death.

HIPAA Release – Authorization for health information release.

Tips to Getting Your Digital Estate in Order

Digital Estate Planning is a proactive process designed to help manage your digital assets upon your incapacity or death. With many bank, brokerage, credit card, bill pay sites and other types of accounts going online (and in some cases, only allowing online access) digital estate planning has become an increasingly important part of traditional estate planning.

It is important that for all of your accounts, which have online access and passwords, that you also have offline documentation which you keep in a known location. That will allow your trustees, designated Power-of-Attorneys or executor’s access to these accounts as and when needed. It is recommended that this documentation be stored in a secure location, preferably near or with your other estate planning documents and that they be updated regularly. 

To help you gather all your account information in one place download our Digital Estate Planning form (a fillable PDF). You’ll want to update the information whenever you open, modify or close an online account.

Your Free Emergency ID Card

If you are unconscious and cannot express your health-care wishes, the quality of your care could be impacted. Medical personnel need to know who to contact and how to contact them as fast as possible.

Below is a link to an “Emergency ID card” that you can complete, print out and carry with you so hospital personnel may quickly contact the appropriate people to act on your behalf.

The card is offered in a fillable PDF format designed for you to complete on your computer. The alternative is to print out the blank document and complete it by hand.

Do your friends and family a favor and send links to this site so they too will be better equipped in a medical emergency as well.

Download a PDF of the Emergency ID Information Card

Just Give Me the Answer$: Expert Advisers
Address Your Most Pressing Financial Questions
By Sheryl Garrett, CFP®, with Marie Swift and The Garrett Planning Network, Inc

Hiring a financial planner is often something people associate with the wealthy. But according to financial guru Sheryl Garrett, everyone should be able to work with a financial professional and take control of his or her financial fitness. In Just Give Me the Answer$: Expert Advisers Address Your Most Pressing Financial Questions, Sheryl Garrett along with Marie Swift and Members of The Garrett Planning Network have provided the answers to the most pressing financial questions consumers ask as they pass through various life stages. Sprinkled with real-life stories and specific examples, Just Give Me the Answer$ is a one-stop resource for anyone looking to get – and keep — their financial house in order.

Money Without Matrimony
By Sheryl Garrett, CFP®, and Debra A. Neiman, CFP®, MBA

This book provides financial planning tools and strategies that enable unmarried couples to solve the financial, legal, and discriminatory dilemmas inherent in their living situation. The authors take a real-world approach to the issues, providing specific advice and direction for the more than 5 million couples across the unmarried spectrum. It is an invaluable guide for anyone, of any age, who is unmarried and lives with or is considering living with a partner.

Conscious Finance 
By Rick Kahler, CFP®, and Kathleen Fox

This book will help you discover your unconscious money beliefs and break their power, transforming the role of money in your life. It will give you practical, down-to-earth guidance along a new path to help you achieve fulfillment and prosperity far deeper than just financial success.

The Number: A Completely Different Way to Think about the Rest of Your Life 
By Lee Eisenberg

“The Number” is the amount of money you need to have socked away in order to be confident that your post retirement life will meet your expectations. Everyone’s Number is different – and while it is important to save enough to last – Eisenberg says Americans need to also determine how they want the rest of their life to look. “It’s not just ‘how much’ but ‘what for’” he says. He provides a charmingly written consideration of an aging generation’s retirement worries and of the investment business designed to profit from them. Heartfelt discussions of goals, health and health care, “downshifting” to enjoy life while spending less money and the meaning of post retirement life pepper its pages. His perceptive analysis of real and fictional people’s financial hopes and strategies will inspire readers to reconsider their Numbers and their methods for investing. Sheryl Garrett, founder of the Garrett Planning Network, George Kinder, co-founder of the Kinder Institute of Life Planning, and many other leading financial planners are profiled in the book. Eisenberg provides additional thoughts on his web-log (www.thenumberbook.com).

Zero Debt  
By Lynette Khalfani

If you want to be debt-free and achieve financial freedom, you need an action plan to guide you. This book is your step-by-step plan and it’s simple and easy to understand.

Ten Weeks to Financial Awakening: A Guidebook to the Creation of Your Own Financial Plan Using Quicken Software  
By Paul Lemon

This isn’t really a book, it’s a complete financial planning program that will help you organize and control your finances and take control of your financial life. This book guides you step-by-step to developing your own financial plan.

The Ultimate Credit Handbook: How to Cut Your Debt and Have a Lifetime of Great Credit
By Gerri Detweiler

A former director of Bankcard Holders of America, Gerri Detweiler draws on her years of expertise in counseling consumers with credit problems to write the definitive handbook on how to have more credit, get out of debt and live a lifetime of financial stability and prosperity.

College Money Handbook  
By Petersons

This book is an annually updated reference guide to more than 1,600 individual colleges’ student financial aid appropriations. It is designed to help prospective undergraduate students and their families discover what they might look for in financial aid from particular institutions, aid them in making comparisons between institutions and help them make decisions related to financial aid. The front matter provides a concise overview of the student financial aid system.

Suddenly Single: Money Skills for Divorcees and Widows
By Kerry Hannon

This book provides divorced or widowed women with essential information that can transform their lives. The book should be viewed as an essential survival kit for all suddenly singles.

The Budget Kit  
By Judy Lawrence

This book has a simple, no-nonsense approach to understanding and managing one’s financial life. The recommendations and examples are superb, and the “big picture” is communicated effectively. The book is a complete kit by itself, and the associated Web site offers more outstanding advice and useful tools.

Does Your Broker Owe You Money
By Daniel R. Solin, Esq.

This book discusses how investors can avoid being victimized by brokers and how to get their money back if they incurred losses on account of broker misconduct. An excellent primer for those wanting to get “the inside skinny” of the brokerage business. Shows investors the various forms of broker fraud, and helps them determine if they have a claim. Gives you the tools to assess if you have a claim and advises you on what your next steps should be.

You Don’t Have to Be Rich: Comfort, Happiness and Financial Security on Your Own Terms  
By Jean Chatzky

Chatzky, who is with NBC’s Today Show and Money Magazine, creates an insightful book that shows can show you how to make financial decisions to make you truly happy no matter your financial means. Practical advice. Highly inspiring.

The Richest Man in Babylon
By George Clason

A collection of parables written in the 1920s, this book is a timeless, inspirational work. Great advice on the subject of thrift, financial planning and personal wealth, that is just as sound today, as it was 80 years ago.

Your Money or Your Life: Transforming Your Relationship With Money and Achieving Financial Independence: Fully Revised and Updated for 2018   
By  Vicki Robin and Joe Dominguez

This is a best-selling book on how to get control of your money and your life. The authors help you take a look at how you handle your money, and whether it is a reflection of your values.

The Millionaire Next Door
By Thomas Stanley and William Danko

Contrary to what many may believe, most millionaires are not flashy. This book gives you a good look at the profile of a typical millionaire, how they got there, and how you can learn from their habits. Who knows, you might even become the next Millionaire Next Door.

Saving Money: An Easy, Smart Guide to Saving Money  
By Barbara Loos

Formerly published under the title I Haven’t Saved a Dime, Now What?!, this book has been repackaged, and sold under the Barnes & Noble Basics label. It is designed to walk you through the often puzzling and worry-producing world of money.

Seven Stages of Money Maturity: Understanding the Spirit and
Value of Money in Your Life
By George Kinder, CFP®

This is a book that searches for the spiritual meaning in wealth, and tells the stories of three composite characters throughout the book. You learn how to evolve through the seven stages (innocence, pain, knowledge, understanding, vigor, vision, and aloha) necessary to achieve financial and emotional security. Named as “one of the most influential people in the financial planning industry” (Investment Advisor magazine, June 2003), George is the founder of The Kinder Institute of Life Planning, a personal empowerment and training organization that offers the highly-acclaimed Seven Stages of Money Management Workshop.

Serious Money, Straight Talk about Investing for Retirement
By Rick Ferri, CFA

Serious Money explains why stockbrokers, investment firms, financial consultants and the mass media do not always have your best interests at heart. In this hard-hitting book, author Richard Ferri takes the investment industry to task for spending too much effort on selling and too little on meeting the needs of serious investors.

Who Gets Grandma’s Yellow Pie Plate?  
By Marlene Stum

This is a sensible, down to earth guide on how to handle the distribution of family items from one generation to the next. The goal is to have the process be a celebration of the deceased person’s life, rather than allowing emotions to harm or destroy family relationships.

A Random Walk Down Wall Street: The Best Investment Advice for the New Century
By Burton Malkiel

This is an investment classic, originally published in 1973. It has just been updated, and now takes into account the dot-com meltdown. Among other topics, Malkiel gives an entertaining history of past market bubbles, and explains why it’s not worth trying to beat the market. There is also a life-cycle guide to investing in the market.

Financial Planning & Personal Finance

• NerdWallet – Financial advice and financial product recommendations.
• Forbes – Fee-Only Planner Blog
• Yahoo Finance – Financial news and commentary on U.S. and world markets, plus investment, loan and insurance centers.
• Your Credit Score – Use this from My FICO to find out what your credit score might be.
• Money Central - Investor quotes, charts, news and a variety of financial planning information.
  
  

Professional Organizations

• The Garrett Planning Network, INC. – Nationwide network of professional fee-only financial advisors, dedicated to serving people from all walks of life on an hourly, as-needed basis, founded by Sheryl Garrett, CFP®, author of “Just Give Me the Answer$” and one of the Top 25 Most Influential People in Financial Planning.
• National Association of Personal Financial Advisors (NAPFA) – Information about NAPFA and fee-only financial planners, including why choose a fee-only financial advisor.
• Certified Financial Planner (CFP) Board of Standards - Information about Certified Financial Planner (CFP) licensees and the financial planning profession, including what it takes to become a CFP and tips on how to select a financial advisor.
• Financial Planning Association (FPA) - Membership organization for the financial planning community. Members include individuals and companies who have contributed to building the financial planning profession and all those who champion the financial planning process. The website provides a search engine for CFP practitioners in your area.
  
  

Governmental Sites

• California Franchise Tax Board – Portal for California tax forms and information for individuals and businesses.
• Social Security Administration – News and how-to information on tax withholding, obtaining a replacement card or Statement of Earnings and Benefits, etc.
• Medicare – Learn about eligibility and benefits, billing, compare health-care options, download Medicare forms, and locate participating providers by geographic area.
• Internal Revenue Service – Tax forms, publications and information.
  
  

College, Education & Financial Aid

• College Board Online – Student and parent information. College planning news, tools and resources.
• Free Application Federal Student Aid (FAFSA Form) – Fill out your free application for federal student aid online.
  
  

Market News

• CNBC – Market commentary plus the latest business headlines from CNBC / MSNBC / Wall Street Journal.
• Wall Street Journal – Interactive edition. All the news of the WSJ plus 24-hour-a-day updates.
  
  

Mutual Funds

• Morningstar Online – Primary provider of mutual fund research. Market reports and investor information. Your first second opinion.
• Mutual Fund Investors Center – Educational center with planning tools and mutual fund tracking features.
  
  

Bank Account Rate Comparison

• Depositaccounts.com - Tracks current interest rates at thousands of banks and credit unions to allow you to easily compare rates between banks.