the science of investing
The Science of investing revolves around calculating the probability of an investment’s outcome based on its historical performance – “probability” & nothing more.
- History offers no certainty about the future but it’s reasonable to conclude the probabilities of certain investment outcomes based on long term track record. Historically, stocks have been riskier than bonds (deposits) resulting in better performance. Investments in smaller companies have fared better than their larger counterparts. ‘Value-style’ of investment strategy in stock picking has outperformed ‘growth’ over longer periods. Many such investment fundamentals lose significance to the aura of investment trends, strategies, tech algorithms etc. This phenomenon stems from the myopic pursuit of high returns or quick profits.
- While occasional scenarios may challenge these principles, any attempt to design an investment philosophy that harps merely on “predictions” is at best, tactical in nature and leads to short-lived and inconsistent outperformance.
- Instead, a simpler and more effective approach to choosing investments is to reflect on a fundamental question: What’s the longest period you can go without accessing the invested money? By aligning your return expectation with the projected return and time-frame of the investment product, you can make more strategic and informed investment decisions.
- Here are three broad ways to categorise your investments
When there is need for money at short notice
A ‘parking strategy’ where returns are traded for safety, not to mention, ease of access to money.
When you have a few months to a couple of years (< 5 years)
Assets that generate regular income (interest) and exhibit predictable characteristics for estimating potential returns
SEE MOREAn ‘income strategy’ when there’s inadequate income or a need for income diversification. The strategy also works well when aiming for reasonable returns (with minimal to no volatility) within a modest period.
For an indeterminate (long) period
Products that create alpha or appreciates in value in keeping with the times (inflation)
SEE MOREA ‘growth strategy’ that swaps capital safety for higher returns. The inflation-indexed returns serve as compensation for the inherent risk of volatility.
As an investor with myriad options to choose from an investment universe, start by assessing your money requirements and the time-frame. This initial broad classification will significantly bring down the margin of error.
In our role, we leverage a probability compass to guide you in picking the most suitable products, aligning their historical performance with your financial requirements. We take great care to ensure that the information we share with you is complete and updated with full disclosures. Our commitment includes outlining material facts, historical data, and product associated risks to facilitate your decision-making process.
Reach out to explore.