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The Emotional Cycle of Investing

This chart illustrates the emotional cycle of investing and is at the heart of why investing is so difficult for so many. Once you become aware, you'll quickly realize it's in the financial media and Wall Street brokerage firms' interest to perpetuate this cycle because it hooks you emotionally. If you're not aware, it will convince you that you should be doing something which often means moving money from one investment to another.  Always chasing one investment idea after another can result in increased costs reducing return.  One could justify this constant movement if it resulted in better returns, but there's little to no evidence supporting this approach. 

Removing yourself from this cycle is an important first step in achieving clarity with your investments.

An alternative approach which we recommend it to approach investment management through an Asset Class Investing investment philosophy. 

Asset class investing is grounded in academic theory and more than 80 years of economic data on the efficiency of capital markets, the benefits of diversification and impact of investor behavior on investment success. The Asset Class Investing approach provides diversified exposure to asset classes worldwide, captures specific dimensions of risk within each asset class and seeks to enhance returns through prudent trading and cost management.

Our financial philosophy is grounded in:

  1. LONG-TERM INVESTING Structured Investing is guided by a long-term investment policy. The investor who stays invested for the long-term is more likely to achieve his or her goals than the investor who chases “hot tips” for quick profits in the stock market. Lack of discipline, emotion and trying to time the market can affect your long-term investing success.
  2. MODERN PORTFOLIO THEORY Modern Portfolio Theory was introduced by Harry Markowitz with his paper "Portfolio Selection," which appeared in the 1952 Journal of Finance. Thirty-eight years later, he shared a Nobel Prize with Merton Miller and William Sharpe for what has become a broad theory for portfolio selection. The basic concepts of the theory are the relationship of risk and return, portfolio diversification, and the efficient frontier.
  3. BEHAVIORAL FINANCE Behavioral Finance applies scientific research on human and social cognitive and emotional biases to better understand economic decisions and how they affect market prices, investment returns and allocation of resources.
  4. MULTI FACTOR MODEL The Multi-Factor Asset Pricing Model was developed in 1992 by Eugene F. Fama & Kenneth R. French of University of Chicago. Their research identified three risks worth taking over long investing periods; invest in stocks, emphasize small companies, and emphasize value companies.
  5. EFFICIENT MARKET THEORY Efficient Market Theory assumes that market prices fully reflect all available information. In an efficient market, investors cannot expect to earn above average profits without assuming above-average risks.
  6. TRADE OR COST MANAGEMENT Asset Class Investing seeks to minimize transaction costs and enhance returns through prudent trading and cost management.