Approaching a problem or a set of questions from an evidence-based point of view has profoundly affected the field of medicine, and now investing. EBI offers a way to answer investment questions in a systematic, analytical, and scientific manner as described in the four steps below.
Eliminate Meaningless Questions
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What is the best way to capture market returns?
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Do professional money managers perform better than market indexes?
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Can you beat the market by identifying great money managers?
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Can market timing improve returns?
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Can investors overcome the fees charged and taxes generated by money managers?
Ask Meaningful Questions
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What is the role of bonds and what types of bonds are most appropriate?
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Is it advantageous to diversify overseas?
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Can small stocks be safely included in diversified portfolios?
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Are value stocks preferable to growth stocks?
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Should diversified portfolios invest in assets other than stocks and bonds?
Apply the Evidence
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For investment selection, both passive (indexed) and broad-based market funds have the essential characteristics of being low cost, tax-efficient, and transparent.
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Rebalancing ensures a commitment to long-term risk control and can enhance return. Simply put, rebalancing allows you to systematically purchase investments that have declined in price and sell investments that have increased in price.
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As legendary investor Sir John Templeton said, “For all long-term investors, there is only one objective: maximum total return after taxes.”
Monitor for Effectiveness
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The last step, monitoring for effectiveness, is a very important part of the process. We refer to it as “robust investment oversight” which we believe significantly enhances investment results by eliminating needless risk.
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Savant Capital Management, a fee-only wealth management firm with some $5 billion in assets and a financial advisory team of about 40 individuals, based in Rockford, Illinois.