What Would Your Retirement Look Like with a Research-Based Investment Approach?
by Chris Brown, Ph.D., MBA, CFP® and Ron A. Rhoades, JD, CFP®
This is Part 6 of Scholar Financial’s “Evidence-Based Investing” series. To view the entire series, click here. To receive bi-weekly updates on our blog posts, please join our email newsletter by clicking here.
Carol and David Mitchell had seen it all during their combined 62 years in education – Carol as a school administrator, and David as a university professor. They had weathered budget crises, curriculum changes, and countless late nights grading papers. Now, at 62 and 64 respectively, they stood on the threshold of retirement with a simple question: after all those years of careful saving, would their money outlast them?
Their retirement accounts totaled just over $1.2 million – substantial, but not unlimited. They would be relying on this money, along with Social Security and their modest pensions, for potentially 30 years or more. The financial decisions they made now would ripple through every year of their retirement.
They had heard about Evidence-Based Investing, but they were not sure what it actually meant for them. What would their retirement look like if they committed to this research-based approach?
The Integration of Principles
Evidence-Based Investing isn’t a single technique. Rather, it is a comprehensive framework that integrates multiple academic research-backed principles. For Carol and David, embracing EBI meant weaving together diversification, factor investing, cost management, disciplined rebalancing, tax efficiency, and behavioral discipline into a coherent strategy.
Their first step was understanding that these principles work together synergistically. Diversification reduces risk. Factor tilts can enhance expected returns. Low costs ensure more of those returns stay in their pocket. Rebalancing maintains their risk level and harvests volatility. Tax-efficient management preserves wealth. Behavioral discipline keeps them from sabotaging the plan during market turbulence.
No single element provides a magic solution. Together, they create a resilient approach to investing that has been tested across decades of market history.
Benefit One: Reduced Risk Through Understanding
The first benefit Carol and David experienced was psychological: reduced anxiety. Evidence-Based Investing’s focus on diversification, low costs, and long-term discipline gave them a framework for understanding their portfolio.
When markets declined – as they inevitably would – Carol and David wouldn’t be caught off guard. They understood that volatility is normal, that downturns have always been temporary, and that their diversified portfolio was designed to weather storms. They had an Investment Policy Statement that documented their strategy and risk tolerance, removing the need to make panicked decisions in the heat of market turmoil.
This understanding translated into something priceless: the ability to sleep at night, even when financial news screamed crisis.
Benefit Two: Enhanced Long-Term Returns
EBI doesn’t promise market-beating returns through stock picking or market timing – the evidence shows those approaches rarely work.(1) Instead, it offers something better: a higher probability of achieving long-term financial goals through systematic exposure to the market and well-documented return factors.(2)
For Carol and David, this meant a portfolio thoughtfully tilted toward factors that academic research has associated with higher returns over time – smaller companies, value stocks, and firms with high profits-to-assets ratios. It meant keeping costs so low that more of the market’s returns flowed to them rather than to fund companies. It also meant tax-loss harvesting and asset location strategies that could add meaningful value over decades.
None of these enhancements guaranteed outperformance in any given year. But over a 30-year retirement? The cumulative effect could mean hundreds of thousands of additional dollars available for their goals.
Benefit Three: A Better Investor Experience
Perhaps the most underrated benefit of Evidence-Based Investing is the improved experience it provides. EBI promotes a rational, disciplined approach that reduces the stress and anxiety often associated with market fluctuations.(3)
Carol and David no longer felt the need to watch financial news obsessively or second-guess every market movement. Their strategy was set. Guided by their investment advisers, their rebalancing happened quarterly, and also during major market movements. Their focus could shift from worrying to living—traveling to visit grandchildren, volunteering at causes they cared about, and pursuing hobbies neglected during busy careers.
“I used to dread looking at our account statements,” David admitted. “Now I check quarterly, confirm we’re on track, and move on. The investment piece of retirement just… works.”
Benefit Four: Accessibility
Evidence-Based strategies have become increasingly accessible through low-cost mutual funds and exchange-traded funds. Carol and David didn’t need to be Wall Street insiders or possess seven-figure portfolios to implement a sophisticated, research-backed approach.
At 59½, David had rolled over his 403(b) to an IRA while still employed — a provision many educators don’t realize is available in many 403(b) and 401(k) plans. This opened up investment options far superior to the limited, often expensive funds in his university’s retirement plan. Carol did the same with her 457(b). Together, they now had access to the same evidence-based strategies used by sophisticated institutional investors.
Holistic Planning Beyond Investments
The Mitchells discovered that Evidence-Based Investing was just one piece of comprehensive financial planning. Their fiduciary, fee-only advisors — finance professors themselves who specialized in evidence-based approaches — helped them optimize Social Security claiming strategies, plan for healthcare costs before and at the time of Medicare eligibility, create tax-efficient withdrawal strategies, and update their estate plans.
The investment strategy didn’t exist in isolation. It was integrated into a complete retirement plan that addressed every aspect of their financial lives.
The Answer to Their Question
What would Carol and David’s retirement look like with a research-based investment approach? After two years of living it, they had their answer.
It looked like confidence rather than anxiety. It looked like a clear plan rather than constant second-guessing. It looked like more time enjoying retirement and less time worrying about money. It looked like knowing that their approach was grounded in decades of academic research, not last week’s hot tip.
“We can’t control what the market does,” Carol reflected. “But we can control our response to it. Evidence-Based Investing gave us a framework for responding wisely.”
The investment landscape continues to evolve, but the principles of Evidence-Based Investing remain a valuable framework for navigating its complexities. For investors willing to embrace a disciplined, research-based approach, the path forward is illuminated by decades of academic discovery—and the destination is a retirement built on evidence rather than hope.
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. Markowitz, H. M. (1952). Portfolio selection. The Journal of Finance, 7(1), 77-91.
2. Fama, E. F., & French, K. R. (1992). The Cross-Section of Expected Stock Returns. The Journal of Finance, 47(2), 427-465; Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56. 5 In addition to the Fama-French six factors, other factors worthy of consideration, per a review by the authors of the academic research, appear to be term factor, credit quality factor, low-volatiity factor, and carry factor. Leading papers supporting these factors include, but are not limited to: • Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. Journal of Finance, 47(2), 427-465. • Jegadeesh, N., & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance, 48(1), 65-91. • Novy-Marx, R. (2013). The other side of value: The gross profitability premium. Journal of Financial Economics, 108(1), 1-28. • Asness, C. S., Frazzini, A., & Pedersen, L. H. (2012). Leverage aversion and risk parity. Financial Analysts Journal, 68(5), 47-59. • Campbell, J. Y., & Shiller, R. J. (1991). Yield spreads and interest rates: A bird’s eye view. Review of Economic Studies, 58(3), 495-514. • Altman, E. I. (1989). Measuring corporate bond mortality and performance. Journal of Finance, 44(4), 909-922. • Koijen, R. S. J., Moskowitz, T. J., Pedersen, L. H., & Vrugt, E. B. (2018). Carry. Journal of Financial Economics, 127(2), 197-225. • Baker, M., Bradley, B., & Wurgler, J. (2011). Benchmarks as limits to arbitrage: Understanding the low-volatility anomaly. Financial Analysts Journal, 67(1), 40-54. • Ang, A., Hodrick, R. J., Xing, Y., & Zhang, X. (2006). The cross-section of volatility and expected returns. Journal of Finance, 61(1), 259-299.
3. See, e.g., Bacon, C. (2013). “Behavioral finance and investment policy statements.” Journal of Wealth Management, 16(2), 8-15. This article discusses how a well-crafted IPS can help investors overcome behavioral biases such as loss aversion and overconfidence. See also, e.g., Kinniry, F. M., & Buckley, J. (2017). “The role of investment policy statements in mitigating behavioral biases.” Journal of Financial Planning, 30(6), 142- 153. This article highlights the importance of IPS in mitigating behavioral biases such as confirmation bias and anchoring bias. See also, e.g., Statman, M. (2011). “Behavioral finance and investment policy statements.” Journal of Behavioral Finance, 12(2), 63-71.
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.
