The Research Behind Portfolio Strategy

Your investment portfolio is the engine of your financial journey—it helps move you down the path towards your long-term goals. Each piece plays an important role in reaching the outcomes you desire.

Whether you need help growing your wealth or protecting it, the evidence-driven approach involves designing your portfolio so that each investment has unique characteristics and will react differently to economic, political and societal influences. This is part of the diversification process and it’s one way to use research rather than guesswork.

The Pillars of Evidence-Driven Investing™

Portfolios are designed to help you achieve your financial goals. Risky practices like trying to time the market, anticipate trends or identify mispriced investments may be highly unreliable ways to build wealth.

Instead, the Evidence-Driven Investing™ approach is fueled by data and over 50 years of research, and rooted in diversification and tax aware investments.

Evidence-Driven Portfolios Are Built on Five Pillars

Markets Are Highly Efficient

Billions of dollars are traded daily where buyers and sellers come together and agree on a price. Given so much competition, Evidence-Driven Investing™ believes the current price reflects both the latest news and the latest outlook for the investment and the economy. This approach presumes the investment’s price is the best estimate of the current value, and don’t try to outsmart the market.

Risk & Expected Reward Are Related

If you want the potential for more returns, you’ll need to accept more risk and likely greater fluctuations in value. Sometimes these risks pay off with more return, but sometimes they result in losses. Although adding more unique sources of risk and return can create a portfolio with steadier growth, you shouldn’t take more risk than you’re comfortable with.

Diversification Is Essential

Diversification has been called the only free lunch in investing. This is because using a single stock, strategy or investment type is riskier than mixing lots of different types of investments. Holding multiple investments reduces the risk that any single investment will cause a drag on portfolio performance.

Pursue Factors Of Returns

Research has shown that allocating more of your portfolio to companies that share certain characteristics can increase your potential for return. Although these investments typically bring more risk, Evidence-Driven InvestingTM portfolios are built to most efficiently allocate across multiple sources of risk — even if it means performing differently than headline indexes.

Focus On What We Can Control

Don’t try to predict interest rates, anticipate the impact of government actions or outsmart other traders. Instead, focus on the areas that can be controlled — such as setting a thoughtful investment strategy and following a disciplined review process.

Your Portfolio Building Blocks

The evidence-driven approach is applied across all different types of investments. Instead of attempting to predict where the markets will go, this approach focuses on building a portfolio that increases the probability your plan will be successful.

Each part of your portfolio, whether stocks, bonds or alternatives, plays a unique role in the risk and return profile of your portfolio. When combined, they create a path towards achieving your personal financial goals.

Stocks

Investing in companies can increase the growth potential of your overall portfolio. Any prudent stock portfolio should be invested in companies, both big and small, all around the world.

Bonds

High-quality bonds are the bedrock of your portfolio and can preserve what you’ve worked hard to achieve. A reasonable allocation to high-quality bonds can help reduce the amount you lose in market downturns and help you recover faster.

Alternatives

Alternatives can be used to improve overall portfolio results. These assets can cushion the portfolio from declines in stock markets while offering greater chance for portfolio growth compared to bonds.

An Evidence-Driven Approach

While many professionally designed portfolios will use a combination of stocks and bonds, this approach uses financial research to look beyond traditional investment labels to better understand both the risks that drive performance and how to effectively capture those risks – all with the goal of providing true diversification to help improve your investment journey.

Your Evidence-Driven portfolio is different in these ways:

  • Uses decades of research to understand the risks that drive returns within each asset class
  • Captures returns more effectively given your tolerance for different types of risk
  • Strategically blends your investments and tilts towards higher returning assets based on your risk tolerance
  • Balances stock risks with generally less risky high-quality bonds and fixed income securities

The Benefits of Portfolio Tilts


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Tilt Stocks To Improve Your Outcome

Use stocks to grow the portfolio. Every portfolio designed with this approach starts by investing in companies, both big and small, around the globe.

In addition, research has shown that investing more in companies that share certain characteristics, such as being smaller, of higher quality or less expensive, can change the risks of your portfolio, also increasing your potential for higher returns.

This is called tilting the portfolio.

Curious which types of companies tend to have better returns over time? Dive Deeper →

The Benefits of Portfolio Tilts


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Pinpoint Bonds that Offset Stock Market Risk

The main purpose of bonds is to protect the wealth you’ve worked hard to accumulate. The evidence-driven approach focuses on only the most secure and creditworthy bonds, like those backed by the U.S. government. Including bonds that will be repaid (or mature) within the next 1 to 10 years helps insulate the portfolio from the larger price swings that stocks often endure.

The impact of including high-quality bonds in your portfolio can be significant, leading to a smoother ride and providing the cushion your portfolio needs to endure poor stock market performance.

The Benefits of Portfolio Tilts


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Add Alternatives to Improve Your Portfolio

Alternatives are simply investments that have unique sets of risk compared to traditional stocks or bonds. Those who practice the evidence-driven approach remain skeptical of most alternative strategies, but a small collection of alternatives can offer truly unique sources of risk and return.

Adding alternatives can cushion your portfolio from stock market fluctuations while offering a greater chance for growth compared to high-quality bonds. Even a small allocation to alternatives can soften the portfolio from stock market declines.

The Benefits of Portfolio Tilts


Stocks | Bonds | Alternatives | Portfolio


Tilt Your Portfolio to Create a More Secure Future

Combining these building blocks in the evidence-driven approach offers a portfolio with:

  • More consistent outcomes and smaller average swings in value
  • Better opportunities for growth and similar downside risks as a traditional stock and bond portfolio

Whether you’re saving or spending from your portfolio, these portfolio strategies are designed to help you along your journey.

See how these levers create a unique portfolio experience. Dive Deeper →

Designed for Better Outcomes

All investments will go through periods of decline. The evidence-driven approach doesn’t chase the latest trend, try to keep up with an index or sell before the next decline. Instead, it focuses on designing portfolios to let the power of the markets work for you.

By combining multiple sources of risk and return, tilting stock portfolios to companies with a higher potential for future returns and protecting your wealth with high quality bonds, you can be confident that you are taking a research-backed approach to achieving your financial goals.

Above Confidence Zone

Driven by Evidence. Built for You.

An evidence-driven approach to portfolio building can improve your experience and help put you on the right path to meet your financial goals. Leveraging decades of academic and real-world research, this appoach will help you avoid unnecessary risk to provide you with a more dependable outcome. Your advisor is backed by a broad community of academics, researchers and advisors who are committed to continuously finding new ways to use research to better design and build dependable portfolios.

Because in the end, despite the inevitable ups and downs of the market, the evidence-driven approach to your portfolio can increase your confidence along your investment journey.

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