Evidence-based investing

Evidence-based investing is an approach to building and managing portfolios that relies on long-term data, academic research, and observed market behavior rather than predictions, hunches, or short-term market trends. Instead of trying to forecast which stock, sector, or strategy will outperform next year, it focuses on what decades of evidence show investors can reasonably expect over time.

At its core, evidence-based investing starts with the idea that markets are highly competitive. Prices generally reflect available information quickly, making it difficult to consistently “beat the market” through stock picking or market timing. Research from finance and economics has shown that while markets are not perfectly efficient, persistent outperformance is rare and usually indistinguishable from luck after costs.

Because of this, evidence-based strategies emphasize diversification across asset classes, geographies, and risk factors. Rather than concentrating risk in a few securities, portfolios are designed to capture broad market returns while reducing the impact of any single investment’s failure. Costs are also a central consideration. Numerous studies demonstrate that higher fees, trading expenses, and taxes directly reduce investor returns, often more reliably than any added value from active management.

Another key element is discipline. Evidence-based investing recognizes that investor behavior—panic during downturns, overconfidence during rallies, or chasing recent winners—can be one of the biggest drags on long-term performance. A rules-based, research-driven approach seeks to remove emotion from decision-making and keep investors aligned with a long-term plan, even during periods of market stress.

Finally, evidence-based investing does not claim certainty or promise outsized gains. Instead, it accepts uncertainty as a permanent feature of markets and uses the best available evidence to stack the odds in an investor’s favor over time. The goal is not to predict the future, but to build a resilient strategy grounded in what has consistently worked across many market cycles. In this episode, Steven Podnos, MD, CFP, from Wealth Care LLC, discusses the importance of using evidence-based investing.