What if Your Investments could be Guided by Science instead of Guesswork?
by Chris Brown, Ph.D., MBA, CFP® and Ron A. Rhoades, JD, CFP®
This is Part 1 of Scholar Financial’s “Evidence-Based Investing” series. To view the entire series, click here. To receive bi-weekly updates on the rest of this series, please join our email newsletter by clicking here.
Margaret spent 35 years as a high school chemistry teacher, watching her students learn to trust the scientific method. “Form a hypothesis, test it, analyze the data, then draw conclusions.” She repeated this mantra hundreds of times over her career. Yet when it came to her 403(b) retirement account, she had been doing exactly what she warned her students against: guessing.
At 61, with retirement on the horizon, Margaret found herself wondering: Why doesn’t investing work like science? Why do financial decisions feel more like gambling than chemistry?
What Margaret didn’t know – and what many investors never discover – is that investing can be guided by science. There is a research-based approach to building wealth that has been tested, peer-reviewed, and verified across decades of market data. It’s called Evidence-Based Investing.
The Illusion of Investment Expertise
Investing often seems complicated and unpredictable. Many believe success comes from instinct, luck, or outsmarting the market. We watch financial news anchors make confident predictions. We hear stories of investors who “beat the market” with a hot stock tip. We see advertisements promising exclusive insights that will unlock wealth.
But here is what decades of academic research have consistently shown: these approaches rarely work. Study after study demonstrates that most professional money managers fail to outperform simple, diversified portfolios over the long term.(1) If the professionals can’t do it, what chance do individual investors have when they rely on hunches?
Evidence-Based Investing offers a different path—one grounded in research and disciplined decision-making rather than speculation and prediction.
What Is Evidence-Based Investing?
Evidence-Based Investing (EBI) is a structured framework for creating investment strategies and managing portfolios. It combines historical and present data, scientific theories, and our understanding of markets to inform decisions. The core philosophy is simple: investors should use an analytical approach – similar to the methods used in science – rather than relying on hunches or predictions.
Just as Margaret taught her students to follow the scientific method, EBI champions a systematic approach that relies on decades of historical data and academic research to guide investment decisions. Findings aren’t accepted based on a single study; they must be peer-reviewed and verified across multiple datasets.
The Nobel Prize-Winning Foundation
The cornerstone of Evidence-Based Investing is Modern Portfolio Theory (MPT), a groundbreaking investment framework developed by Harry Markowitz over 70 years ago. This work was so significant that it earned Markowitz a Nobel Prize and revolutionized how we think about investing.(2)
In simple terms, MPT demonstrates that investors can build optimal portfolios by understanding the relationship between risk and return. Instead of trying to pick “winning” stocks – a practice that research shows can be extremely difficult to do consistently – the goal is to create a portfolio that delivers the best possible returns for a specific level of risk.
This was revolutionary. Before Markowitz, investors focused primarily on finding individual securities they believed would outperform. Markowitz demonstrated mathematically that how investments work together matters as much as – or more than—how they perform individually.
The Key Principles
Evidence-Based Investing encompasses several core principles that work together to help investors achieve their financial goals:
Diversification: Don’t put all your eggs in one basket. By spreading investments across various carefully selected asset classes with different risk characteristics, investors can reduce overall portfolio risk without sacrificing expected return.
Factor Investing: Academic research has identified characteristics – such as company size, value, and profitability – that can influence investment returns over long periods.
Cost Management: High fees can significantly reduce long-term returns. Research consistently shows that low-cost investments typically outperform their high-fee alternatives when using comparisons within the same asset class.(5) There are many fees that are somewhat “hidden” from investors, as well.(4)
Disciplined Rebalancing: Regular portfolio adjustments help maintain your desired risk level. This implements an approach that follows a “buy low, sell high” mentality – quite the opposite of what many investors mistakenly do.
Behavioral Discipline: Understanding and overcoming emotional biases that lead investors to make poor decisions – like panic selling during downturns. Ongoing education by a trusted financial and investment adviser, combined with a well-documented investment policy to guide future investment actions, can counter the behavioral biases that often wreck investment portfolio performance.
Margaret’s Discovery
When Margaret finally learned about Evidence-Based Investing, something clicked. “This is exactly how I taught science,” she realized. “Form a hypothesis based on theory, test it thoroughly and repeatedly against data, and let the evidence guide your conclusions.”
At 59½, Margaret learned she was eligible to roll over her 403(b) retirement account to an IRA while still employed. An IRA gave her access to better investment options and the ability to work with fiduciary, fee-only advisers who specialize in evidence-based approaches. She no longer had to be limited to the handful of expensive funds her school district offered.
For Margaret, the answer to her question was clear: investing absolutely can work like science. The research exists. The evidence is compelling. And for investors willing to embrace a disciplined, research-based approach, the path forward is illuminated by decades of academic discovery.
The only question is whether you’re ready to stop guessing – and start investing based on evidence.
About the Authors
Ron A. Rhoades, JD, CFP®
Ron Rhoades is an Associate Professor of Finance at the Gordon Ford College of Business, Western Kentucky University. He also serves as a financial advisor at Scholar Financial, a practice within XY Investment Solutions LLC. With a background as both an attorney and a CERTIFIED FINANCIAL PLANNER™ professional, Ron is a nationally recognized authority on the fiduciary duties of financial advisors.
Chris Brown, Ph.D., CFP®
Chris Brown is a faculty member in the Department of Finance at the Gordon Ford College of Business, Western Kentucky University, and a financial advisor at Scholar Financial, a practice within XY Investment Solutions, LLC. He holds the CERTIFIED FINANCIAL PLANNER™ designation and a Ph.D. in Personal Financial Planning. His research and teaching focus is on behavioral finance, retirement planning, and evidence-based investment strategies.
Endnotes
1. Even recent analysis supports this. See Amy C. Arnott, “The Myth of the Stock-Picker’s Market” Morningstar, Oct. 21, 2025, https://www.morningstar.com/stocks/myth-stock-pickers-market.
2. “Harry Markowitz.” UBS: Nobel Perspectives & Economic Views. https://www.ubs.com/microsites/nobel-perspectives/en/laureates/harry-markowitz.html
3. See the Securities and Exchance Commission’s Investor Bulletin: How Fees and Expenses Effect Your Investment Portfolio for a breakdown an example: https://www.sec.gov/investor/alerts/ib_fees_expenses.pdf
4. Fidelity. ”Beat hidden investment fees.” https://www.fidelity.com/learning-center/personal-finance/hidden-investment-fees
This article is for educational purposes only. It should not be construed as financial, legal, tax, or investment advice, nor as a recommendation to implement any specific strategy, product, or investment. Consult with a qualified financial professional before making investment decisions.
