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Investing Philosophy

Our investment philosophy is based on a few guiding principles. Below you can see a more detailed explanation of each.


The cost of investment products has dropped dramatically. If you haven’t reviewed yours in years, you’re likely paying too much.
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More complexity does not make more money. We keep our process simple, saving you money and time so you can focus on what matters most to you.
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We try to eliminate investor emotions by having a set of rules and sticking to them. 


We invest based on decades of peer-reviewed academic work. You won’t find forecasts or hunches here.

Don't be dumb

Avoid unnecessary taxes and expenses, avoid proprietary black boxes, avoid annuities and bad life insurance products.

Investing should be cheap

Prior to May 1st 1975, all trading commissions were fixed. Banks got together and collectively decided how much you paid to buy a stock. On that day, forever known as May Day on Wall St, the SEC deregulated trading fees, and banks and brokers were now free to set pricing on their own. Competition creates better pricing.

Wall St Journal columnist Jason Zweig wrote in his article "How May Day Remade Wall Street"

"Mr. Wagner says he came into work early on May 1, 1975 to sit at Wilshire's trading desk and see what would happen. "And the phone started to ring," he recalls, "and the questions was always the same: 'What's your rate?' and our answer was always the same: 'What do you want it to be?'"

May Day started a slow cascade of falling commissions. Add in advanced technology and the internet, and we arrived in 2019 with all well-known online brokerages taking trading commissions to zero.

Better technology and transparency has also led to gradual reduction in internal charges for investment products (for example, the fees charged inside of a mutual fund that you never see).

The combination has created the cheapest investment environment in history. In 2020, a person can invest in a broad basket of stocks, easily, online, and it can be effectively free!

Of course the third piece of investing cost is the advice itself; how much should that be? Fortunately, increased education and transparency is lowering the cost here as well.

By using low-cost investment products, eliminating commissions using reputable online brokers, and lowering our fee well below the industry standard, we're able to offer quality advice at a fraction of the cost of a large bank.

We charge 0.10% on anything over $3 million invested. We've done this to effectively 'cap' our fees, because we don't think it's fair to continue charging you for every dollar invested as your portfolio grows. Money you don't pay us is money that stays invested, increasing your returns dramatically over time.

Finally, tax efficiency matters. We utilize smart tax location and tax-loss harvesting to reduce overall exposure, and ETFs due to their overall tax efficiency. Why pay taxes if you don't have to?

Investing should be simple

First things first: Don't confuse simple with easy! Investing is a difficult thing to do well and consistently...but that's different than complex.

When we say simple, we mean that more complexity, more confusing jargon, more legal paperwork, etc, does not make you more money! Having a simple model can save you in many ways.

From a 1969 L.R. Goldberg study comparing the psychosis diagnoses between a simple model, complex model, or human experts:

A study of 136 published studies that analyze the accuracy of “actuarial” (i.e., computers/models) vs. “clinical” (i.e., human experts) judgment found:

"Models beat experts 46% of the time; models equal or beat experts 94% of the time; and experts beat models a mere 6% of the time"

... from Wharton researcher J. Scott Armstrong:

"Complexity increases forecast error by 27 percent on average in the 25 papers with quantitative comparisons. The finding is consistent with prior research to identify valid forecasting methods: all 22 previously identified evidence-based forecasting procedures are simple."

Science supports this over and over... simple models beat complex.

Investing should be rules-based

Money is intertwined with emotions and humans are emotional animals!  It's impossible to "turn off" your emotional responses to money. If you've ever spent time in a casino, you know what I mean. Try to pretend you don't care about winning or losing on the craps table!

Not to mention, we all come with our own set of natural biases. Again, these can't be helped, it's just part of our makeup. The same person can be presented with the same set of facts or data, but make drastically different decisions, because they are armed with a different set of biases.

A relevant example of emotions and their effect on investing is called the "prospect theory." It basically summarized two findings:

  • Faced with a risky choice leading to gains, individuals are risk-averse - ie - humans will make a small gain and 'take their chips off the table' to avoid losing it.
  • Faced with a risky choice leading to losses, individuals are risk-seeking - ie - humans will hold onto a losing position (seek more risk) instead of selling.

Kahneman and Tversky found that "losses loomed larger than gains" ... the concept we now call "loss aversion."

Russell A. Poldrack, a professor of psychology at Stanford University, wrote about his 2007 study of loss aversion:

"In the study, we monitored brain activity while participants decided whether to take a gamble with actual money. We found enhanced activity in the participants' reward circuitry as the amount of the reward increased and decreasing activity in the same circuitry as the potential losses accrued. Perhaps most interesting, the reactions in our subjects' brains were stronger in response to possible losses than to gains—a phenomenon we dubbed neural loss aversion. We also found that individuals displayed varying degrees of sensitivity to loss aversion, and these wide-ranging neural responses predicted differences in their behavior. For instance, people with stronger neural sensitivity to both losses and gains were more risk-averse."

Summarizing this: your brain is hard-wired to be emotional with money decisions. Investing based on rules reduces your need to make "gut" decisions. You no longer care what that guy is screaming about on the financial news. You know when you buy, when to sell, and what causes each.

Investing should be based on evidence

We're big fans of evidence.

To form a Rules-Based investment plan you have to build it with evidence. We built our investment models from the ground up using peer-reviewed, quantitative research. But we have to start with the basics:

  1. Avoiding big mistakes is the first step, aka - be less wrong!
  2. We use quantitative assessments to determine your appetite for risk and combine that with your time horizon to determine your core allocation:

~3. We use cheap, ETFs to build the core portfolio: they're liquid and more tax efficient.

~4. We tilt the stock allocation towards Value and Momentum. Why? Historically, it works

~5. Then we apply trend-following to the rest of the portfolio. Why? Historically, it works!

The rules are applied to the remainder of the portfolios:

We apply 'the rules' to the trend-sensitive asset classes:

~6. Portfolios are rebalanced monthly using percentage 'bands' on the total allocation.

~7. Client goals and objectives are revisited regularly, and portfolios are reviewed in kind.

Don't be dumb

Much of investment success is just avoiding big mistakes. Get rich quick schemes (multi-level marketing), fad investment products (structured products), oversold life insurance, private or proprietary investment deals (your buddy's restaurant idea) - they're everywhere. And they are portfolio destroyers.

Along with not making bad investments, avoiding high fee products and unnecessary taxes can save you money every day, every year...and that money compounds too.

Innovate Wealth founder Steve Sivak.

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