Evidence-based, long-term, holistic investment plan personalized for each individual’s unique circumstances.

The Evidence-based Approach


Timing Doesn’t Work

Timing the market is extremely difficult, often success is pure luck. Doing so over the long term is even harder. Not only do you need to be right when to get out, but when to get back in. According to the latest SPIVA report card, over the last 5-year period 84.47% of professionally managed equity funds underperformed their benchmark. Put another way, during 2018, the average daily equity trading volume was $462.8 billion around the world. Each trade is based on each person’s unique insight, emotion, and analysis. The combined effect is that all available information is quickly incorporated into market prices. Next time you see a news article or hot tip, just remember the odds are stacked against you over the long term.


Modern Portfolio Theory (MPT)

Modern Portfolio Theory (MPT) is the bedrock of the asset allocation decision for a well-diversified portfolio. Developed by Nobel Laureate Harry Markowitz and refined over the years, MPT seeks to lower your overall portfolio volatility and improve performance over the long-term by spreading the risk across different asset classes that act differently.We have all heard it before – higher risk, the higher the potential reward and vice versa. MPT looks at the balance between risky assets, equities, and more stable fixed income securities. Each portfolio, based on its level of risk, has an optimal asset allocation producing the highest rate of return for that stated risk. Across all possible portfolio combinations results in the Efficient Frontier.AIW’s main approach is based around your wealth plan. Through 1,000’s of Monte Carlo simulations, we only recommend taking the amount of risk you need in the stock market and not anymore.


Academic Research

Academic research has found various factors or set of parameters certain stocks exhibit to explain their behavior. Certain factors have been found to be pervasive and persistent across multiple time periods. Investors tilting towards these factors have benefited from higher expected returns.

  • Value – Nobel Laureate Eugene Fama and Kenneth French famously introduced to the world through the Fama-French model the size and value factors. Value is the suggestion that inexpensive stocks should outperform more expensive ones over the long term. As you can see below, “cheap” stocks tend to outperform “expensive” stocks by close to 5%.
  • Size – The second factor to arise from Fama-French’s research is the size factor phenomenon. By investing in smaller companies as defined by market capitalization, a return premium emerges. Often, this is theorized that due to their increased volatility and other risks such as the increased risk of bankruptcy, that investors demand an additional rate of compensation for said risks.
  • Momentum – Famously publicized in 1993 by Narasimhan Jegadeesh and Sheridan Titman, momentum is the factor emerging from the idea that stocks that have done well in the medium term, continue to do so. Stocks that have lagged in the medium term, tend to lag.
  • Profitability – Robert Novy-Marx studies found that tilting a portfolio to companies with higher profitability ratios increased their relative performance. Especially so alongside the value premium.
  • Quality – Another evident factor arising from academia, quality affirms the age-old belief that seeking out higher-quality companies from a financial statement approach outperform over the long-term. Higher quality companies exhibit higher earnings quality or lower accruals.
  • Defensive – Defensive, low-volatility, or also commonly known as smart beta. Each interchangeable but exhibit the factor approach of owning stocks that have lower risk or volatility in the market, historically results in higher risk-adjusted returns.
Yearly observations of US Markets from 1928-2017

International Diversification

Many investors exhibit “home-country bias” or over-allocating to the region the reside in. Which makes sense since this is where you live and work. However, having 70% plus invested in a single market opens you up to concentrated home country risk that could be diversified away with tils towards international and emerging markets.


Costs Matter

Focusing on what you can control in your portfolio is often the prudent approach. Asset allocation, savings rates, and costs. Looking under the hood of each mutual fund, ETF or other investment vehicle it is paramount investors understand the costs involved. Institutional, no load, low turnover, and low expense ratio mutual funds or ETFs with no 12-b1 fees funds should be preferred.This data indicates that a high expense ratio presents a challenging hurdle for funds to overcome, especially over longer time horizons. From the investor’s point of view, an expense ratio of 0.25% vs. 1.25% means savings of $10,000 per year on every $1 million invested. As Exhibit 2 helps to illustrate, those dollars can really add up over time.


Taxes Matter

Last but not least, taxes are an important factor to integrate with your well crafted long-term financial plan. Investing, no matter what stage of retirement planning, with taxes in mind is crucial for long-term wealth generation and the transfer of wealth to future generations. The benefits of planning for income and estate taxes should be incorporated every step of the way.

Let us help you create a comprehensive, customized financial plan through our CFO advisory service.