Today, Kate and her guest, Wendy J. Cook talk about evidence-based investing, something which is not very easy to understand. Wendy explains the need for investors to understand what passive, or evidence-based investing is and that typically, in the financial media, you will find that the magazines, TV channels and newsletters make their money by getting you to put your portfolio together in reaction to what's happening in the current news. She explains the necessity of ignoring this short term noise, which doesn't contribute to the long term returns. She talks about some of the behavioral biases that control investors to make poor decisions and buy a random collection of what can best be described as ''stuff''.
Kate points out that this is neither an allocation, nor is it diversification- it's just a bunch of ''stuff''. She explains that this would be neither an effective nor an efficient way to manage your portfolio, as that is only a short term viewpoint, which makes people feel like they're doing something, yet it's just the illusion of a control bias. Wendy talks about this and she also clears up some of the jargon you might hear from the financial media.
Wendy is the owner of Wendy J. Cook Communications, which provides writing and editing services to evidence-based registered Investment Adviser Firms that construct client portfolios using funds from Dimensional Fund Advisers. This is exactly what is done at Kate's firm, Better Money Decisions- they use Dimensional Fund Advisers, as well as other, similarly structured solutions. Wendy was formerly the Director of Communications for Bam Advisor Services, Buckingham Asset Management. Listen in today and find out why your investment portfolio management should be based on the science of investing, rather than a reaction to current events.
Today, Wendy talks to Kate about:
•A simple definition of what evidence-based investing is.
•How having a plan when you start out can prevent you from buying just a whole lot of “stuff”.
•How she faces the challenge of breaking down the terms which refer to active vs passive investments.
•Why she would prefer to work with a professional financial advisor, even though she understands all the over-arching principals of investing.
•That the behavioral component is the most important thing.
•That the greed component is still evident to her today.
•How we, as a financial community, come up with what is and what is not supported by evidence.
•Five points from Larry Swedroe's new book, The Complete Guide To Factor Based Investing: 1) It has to be Persistent 2) It has to be Pervasive 3) It has to be Robust 4) It has to be Investable 5) It has to be Explainable
•That it takes some training to understand the data in studies. (Kate points out that data is not opinion based.)
•There is no cohesive strategy coming through the media- they are usually working against the investor and the science of investing.
Wendy's website: www.wendyjcook.com
Wendy on Twitter: @wendyjcook
For your questions about anything in the show, or otherwise, write to: firstname.lastname@example.org