Performance Based Investing

My good friend Matt Kerkhoff, who runs Model Investing, wrote this article recently.

While Matt and I don’t always agree on things (he tends to be the academically correct and I tend to be much more practical) he and I always agree on our core principles: rules based investing, with goals in mind, and low costs wherever possible. This article was a great read.

His first point is an excellent example of where we disagree, but don’t disagree. It is true — you can time markets. And if you are a professional investment manager you might be able to do it. But it can be very hard for us in our busy lives to stay on top of these things — which is why I tend to dissuade people from timing markets. Because I believe timing markets and missing it has the potential to do more harm than riding things out. But to compensate for the “under performance” that riding out markets will have I use financial planning to “hedge” the picture.

But the second point he has we totally agree on — we don’t invest by the numbers. We only care about the performance of an investment as it relates to what you are trying to accomplish. And we want to accomplish your goals with the lowest amount of risk possible. When you start arbitrarily picking asset classes — and not looking at their performance characteristics — you do yourself a disservice!