Evidence-based investment philosophy in Dubai

What is an investment philosophy and why does it matter?

Investing money well requires a logical and robust framework on which to build a lifelong investment programme. It needs to be grounded in investment theory, supported by empirical evidence and enhanced with an insight into the behavioural traps and pitfalls that all investors face, that can and do cost them dear.

While many investors tend to start the process by thinking about what they should invest in, the true starting point should be to focus on how to invest. To do that we need to spend some time establishing the guiding principles and good investment practices that will underpin all the investment decisions that you'll make. Working with a trusted financial advisor in Dubai can ensure these principles are applied effectively.

Investing is a journey and these principles and practices act as a compass to steer you through the maze of choices, emotions and challenges that you'll undoubtedly face.

The role of investment philosophy in financial decision-making

Being an investor is a necessity for most people.

Investing is simple but not necessarily easy: it’s the task of building, or maintaining, reserves of wealth that can help fund financial and lifestyle goals, achieved by owning sensible financial assets that will provide greater future buying power than simply holding cash deposits. A well-considered approach leads to robust portfolios and favourable outcomes, overcoming whatever the markets may throw at us in the future.

Here are five guiding principles that provide the backbone for how you should think about investing, rather than what you should invest in. They’re principles that all investors would do well to adopt. It’s also of immense value to remind yourself of them, from time to time, as they help to provide the confidence and calmness that’s necessary to survive your investment journey.

1. Have faith in capitalism and confidence in the markets

2. Accept that risk and return go hand in hand

3. Let the markets do the heavy lifting

4. Be patient - think long term

5. Be disciplined

How investment philosophy differs from investment strategy

Think of an investment philosophy as the compass guiding an investor’s general direction, while an investment strategy is the roadmap detailing the specific routes to take.

Your philosophy should be a broad, guiding belief system about how markets work and how to achieve returns. It's a long-term approach based on fundamental principles. Your investment strategy, however, is a specific, actionable plan used to implement your philosophy. It involves particular methods, asset choices and execution tactics.

For professional investment advice to help achieve your financial goals, seeking expert guidance is key.

The rise of evidence-based investing and its impact on modern portfolios

When we talk about evidence-based investing, what we’re really referring to is academic evidence.

Some financial professionals are dismissive of academic research, arguing that it’s too far removed from the realities of today’s financial markets. True, academic models are, by their nature, theoretical. But that doesn’t mean investors can’t learn practical lessons from them.

Academics come with models of the world, and those models are usually incomplete. But what do you learn from the models? You gain insight into the real world.

The models have to be incomplete for you to learn from them, but you do learn. You can gain insights about better ways to invest, better ways to structure portfolios so that when you come to the real world, you’re better equipped and have better frameworks to make rational investment decisions.

So academia, by its nature, has to simplify the real world so that you can understand the real world better. But that’s the beauty of how academics approach the problem: they simplify it just enough so that it’s real enough to be interesting, but understandable enough so that you learn something.

A key element of the investment process is the construction of risk graded model portfolios. Model portfolios are used in our financial planning process to provide a robust investment engine for the realisation of your financial and life goals and are designed to offer a range of investment experiences which can be matched with your capacity for investment risk.

The construction of our model portfolios is the result of a properly structured decision process which is based on the work of leading academics in the field of financial economics and evidence based investing.

This body of work is collectively termed Modern Portfolio Theory.

Investment philosophy in Dubai – opportunities and strategies

How Dubai’s financial ecosystem influences investment philosophies

Many people in Dubai struggle to accept a 'boring' investment philosophy and have difficulty with the concept.

Why?

Chasing novelty

Shiny objects like crypto or NFTs feel new and revolutionary. Social media doesn't help.

Fast-paced, high-energy culture

Dubai is known for its dynamic, high-energy lifestyle, where people are accustomed to fast growth, luxury, and excitement.

Comfort in property

High demand for rentals, perceived understanding of property markets and safety of tangible investments make people naturally lean toward real estate investing. Property investment is seen as a more thrilling and tangible way to build wealth in Dubai, and real estate is often viewed as a status symbol.

Instant gratification

The appeal of immediate results can overshadow the value of patience.

Trust issues

Events like the 2008 crash, or the reputation of financial advice in Dubai, leave many wary of traditional financial systems.

Active vs. passive debate

Some still believe in high-cost funds despite the data showing their pitfalls.

High risk appetites

Given Dubai’s economic growth, many investors are more inclined to take on higher risks, particularly in emerging sectors like technology and fintech, where there is potential for quick growth and large returns.

Wealth and luxury culture

Dubai is a city where many individuals, particularly expats, are attracted by the potential to accumulate wealth quickly.

The financial media doesn't help either.

Headlines about meme stocks and cryptocurrency millionaires create a false narrative about what successful investing looks like. It's like focusing on lottery winners while ignoring the millions who lost money buying tickets.

Key investment strategies for success in Dubai’s growing economy

Your strategy doesn't need to change drastically depending on where in the world you live. The fundamentals should remain the same.

It's easy in Dubai to get caught up in looking for the next hot investment, and while this might work for some, the stories you've heard of someone striking gold are likely to be a mixture of survivorship bias, availability bias and luck.

Keep it simple and sensible. Your investment strategy shouldn't be exciting.

"There is something in people; you might even call it a little bit of a gambling instinct... I tell people investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or watching grass grow.
If you want excitement, take $800 and go to Las Vegas."

Paul Samuelson, Ph.D., Nobel Laureate in Economics, 1970
The Ultimate Guide to Indexing (1999)

How evidence-based investing influences asset allocation strategies

We hold a deep conviction that in selecting well-managed, low-cost, systematically managed funds, you have the best chance of capturing the bulk of the market returns that are on offer.

Trying to identify judgemental managers, who can persistently overcome their fees and costs to deliver market beating returns is extremely difficult and requires long track records to discern skill from luck.

Picking funds that will even be around is a tough starting point, given the poor survivorship record of the industry. Living with the inevitable underperformance that will occur from time to time when employing judgemental fund managers is not for the faint hearted and may well lead to impatience and ill-discipline; and we know where that leads.

Core principles of investment philosophy

The importance of risk tolerance in investment decisions

There are many different kinds of risk that investors face and different measures of these risks. For investors planning for the future, the ultimate risk is that they fail to meet their future goals.

That's very different to what is often referred to as ‘risk’ which is the volatility of, say, monthly or annual returns. Goal risk is most critical to you and is addressed through a combination of owning a soundly structured portfolio and good financial planning (including a cashflow plan).

Market volatility, on the other hand, manifests itself more in the emotional pressure that comes with seeing the value of your assets fall or remain static, despite the fact that you do not need to – or have any intention of – cashing them in.

Accept that risk and return are related: to achieve a higher return, you have to take on more risk. Unfortunately, you can’t escape this fact. If an investment looks too good to be true, it probably just means that you haven’t identified where the risks lie! The only opportunity to alter this relationship – at the margin – is through diversification. That’s why it’s an important feature of portfolio construction.

For a deeper understanding of your financial situation, you can use our financial planning calculators to assess risk and return in your portfolio.

Time horizon and its impact on investment choices

One of the great challenges that all investors face is that there is no easy or quick way to investment success.

Aesop’s fable of the tortoise and the hare is a useful metaphor.

You have to use the time on your side – which could be over multiple decades – to capture the returns of the markets effectively, but slowly.

In the short-term, market returns can be disappointing, and at times distressingly so – and on occasion exceptionally exciting - but always remember that you’re playing a long-term game.

It’s time that allows the attributes that you seek to come to the fore. The longer you can hold for, the more likely the returns you will receive will be at worst survivable, and hopefully far more palatable. It’s time that allows small returns to compound into large differences in outcome for the patient investor.

Unfortunately, as investors, in this new digital age, we have immediate access to news, TV punditry, and journalistic hyperbole; we are bombarded with investment noise.

It’s easy to become unnerved about having money in the markets. That creates stress and can lead to poor and unnecessary decisions.

The role of diversification in a strong investment philosophy

Diversification matters because we have very little idea how companies, market sectors, geographic markets and asset types will fare in the short term, despite increasing confidence with how they might – but are not guaranteed to – perform in the longer term.

Making concentrated bets on a few companies in the UK, India or Japan has a far higher chance of future pain and the consequent loss of future lifestyle and personal choice than a broadly diversified global portfolio of equities, counted in thousands of companies across all sectors, markets and company size.

Being well-diversified is:

Primarily about not losing money permanently
About avoiding being stuck in a few companies, a sector or a country that
performs poorly over an extended period of time and takes a long time to recover
About capturing the areas of the market that – at a particular moment in time – are driving returns. Recently, it may have been all about US technology firms, but tomorrow it will be something else entirely

Diversification helps smooth returns. Inevitably there will also be parts of the portfolio that will be doing better or worse than others in your portfolio, but that is the nature of the game.

Try not to look on enviously at recent winners, but just be glad that you already own tomorrow’s winners.

Market efficiency and investment beliefs

In investing, there are two main sources of potential returns.

The first is the return that comes from the markets and the second is the return generated through an investor’s skill.

Those less familiar with investing are prone to make a few understandable assumptions that simplify the choices and challenges that they face.

Perhaps the biggest assumption, and yet most misinformed, is that it’s somehow simple – at least for a market professional – to use their skill to predict what’s going to happen in the markets and position your portfolio appropriately.

It seems reasonable that a professional should be able to decide when to scale back equity exposure or to start buying property, for example.

This is simply not the case; the broad empirical evidence recording the poor performance of the majority of professional fund managers tells us so.

Evidence-based investing vs. traditional investing approaches

Let's look at the benefits of evidence-based investing for long-term wealth preservation.

Evidence-based, systematic investing relies on data, not emotions. It's methodical, cost-efficient, massively diversified and focuses on reliable, long-term growth rather than quick wins.

Here's what it delivers:

Predictability - regular, evidence-backed strategies minimise emotional mistakes.

Cost savings - avoid the allure of high fees from active management—low-cost, systematic investing in the great companies of the world does the job better.

Stronger returns - decades of research show that consistent, patient investing outperforms high-risk, trendy gambles.

Consider this - if you had invested $100,000 in a systematic portfolio of global stocks in 1972 and just left it alone—the most boring strategy possible—you'd have around $39 million today.

No day trading. No 'hot' stuff. No stock picking.

Just time, patience and discipline.

What many miss about evidence-based 'boring' investing vs traditional investing is its hidden advantages:

Mental bandwidth - when you're not constantly checking prices or chasing trends, you free up mental space for what truly matters.

Better decisions - a systematic approach removes emotional bias from your investment choices.

Time freedom - "set and forget" investing gives you back countless hours to focus on family, career, or personal interests.

Sustainable wealth - boring investing builds wealth that tends to last, unlike the boom-and-bust cycle of trend chasing.

Different investment philosophy approaches

Active vs. passive investing: which philosophy suits you?

Systematic investing means things are done according to a disciplined system that’s efficient, methodical and objective.

Whilst, inevitably, we have to hold long-term views on the characteristics of asset classes that we use to build portfolios, we do not make short-term forecasts on the direction of markets or the value of individual securities.

We put in place a sensible long-term strategy, live with it, and refine it over time if new products and evidence allow us to improve its structure.

Low cost – which also means low activity – is key. This approach is sometimes referred to, wrongly, as passive investing or index tracking.

The opposite of a systematic approach is a judgemental approach, which can be described as where a fund manager has the ability to act according to their own discretion or judgement to make subjective forecasts of short-term market or security prices in order to try to beat the market.

This is often referred to as active investing.

Growth investing vs. value investing: key differences

The key difference between growth and value investing lies in the type of companies investors target.

Growth investing focuses on companies expected to grow faster than the market, often in emerging sectors, and typically involves higher risk for potentially higher rewards. Investors are willing to pay a premium for future growth, even if the companies don't show strong profits right away.

On the other hand, value investing involves buying stocks that appear undervalued relative to their intrinsic worth, often with stable earnings and solid fundamentals. The aim is to buy low and wait for the market to recognise the stock’s true value over time.

In short, growth seeks fast growth at higher prices, while value looks for bargains in established companies.

This distinction greatly influenced investors like John Bogle and Warren Buffett. Bogle, the founder of Vanguard, was a proponent of low-cost index investing, which tends to follow a value-oriented strategy, focusing on broad market exposure and long-term growth. He believed in investing in undervalued companies, with a focus on diversification and minimising costs, which aligns closely with value investing principles.

Fundamental analysis vs. technical analysis in investment philosophy

Fundamental analysis focuses on a company’s financial health, economic factors, and long-term value, making it ideal for investors seeking sustainable growth. Technical analysis, which tracks price patterns and trends, can be unpredictable.

Since true value drives long-term returns, fundamental analysis as part of an investment philosophy makes more sense for building lasting wealth.

Behavioral finance and investment philosophy

How emotions influence investment decisions

"The investor’s chief problem – and even his worst enemy – is likely to be himself."
Benjamin Graham “Security Analysis”, 1934

Investing is often likened to a ride on an emotional roller coaster. If you consider the typical behaviour of the vast majority of investors, you can understand why.

When an upward trend – either for an individual stock or indeed the market as a whole – starts to emerge, the investor follows the trend but only buys in once he is convinced that it is for real.

Unfortunately, this is usually at the point that all the gains have been achieved and the trend reverses. Thus, it can be seen how the emotions that drive investors are a powerful force that lead them to buy high and sell low.

Many people struggle to separate their emotions from investing. Markets go up and down. Investing is certainly not emotionally easy.

Reacting to current market conditions may lead to making poor investment decisions.

Cognitive biases and their impact on investing

Unfortunately, evolution has hard-wired the human brain to be particularly poor at making investment decisions. A deep-seated, sub-conscious battle is constantly being waged between greed and desire for reward, and the fear of uncertainty and loss, which creates on-going anxiety and irrational decision-making in many investors.

In practice, we have two minds. One is our intuitive mind that’s fast, automatic and effortless, and requires little conscious input in making rapid judgements. We tend to have great confidence in our intuitive decisions, which can result in a number of mental biases and short-cuts that can lead to very poor investment decisions.

Our other mind is our more reflective; it’s slower, more analytical, more conscious, and requires far more effort to come to decisions. It also tends to accept the decisions of the intuitive mind, unless they’re obviously wrong.

As we know, investors feel approximately twice as much pain from losses as they feel pleasure from gains, which exacerbates emotions in the face of losses.

Evidence of wealth-destroying, emotionally-driven decision making is plentiful, as impatient and ill-disciplined investors have a propensity to chase fund managers (and markets) that have previously performed well and sell poorly performing investments. Buy-high, sell-low is not a good investment strategy.

The psychology of long-term investing

When something is noisy, it’s hard not to be distracted. That’s certainly true with our money.

The rollercoaster ride of investing often sets off our emotional triggers – a sophisticated way of saying we get nervous when they're on the downswing and angry when they're static.

However, it's important to acknowledge that nervousness, anxiety, and fear are natural human responses. They've been ingrained in our evolutionary journey and though they may have some flaws, they serve a purpose.

Throughout the course of human evolution, our brains have been finely tuned to detect danger. This mechanism has been crucial in keeping us alive. The fight-or-flight response is automatically activated when the brain perceives a threat, allowing us to react quickly. This has served us well. Unfortunately, this response has no off switch, it's part of who we are. That was true on the savanna, and it’s true in modern living.

Our emotional attachment to our hard-earned money is powerful. When we take risks, it’s a physical sensation as well as an emotional one.

A lion in the wild or red lines on a chart - both can cause fear.

What’s the natural response to a falling market? For many, it’s similar to seeing the lion. Our DNA tells us to get away from the threat as quickly as possible...but here's the problem. While this makes sense when faced with a lion, in the case of long-term investment, it probably doesn't.

Recognising that both investors and advisers suffer from a range of behavioural biases that are more likely than not to result in the erosion of wealth, we believe that the design of a disciplined, systematic and understandable investment process, and its on-going implementation, is central to your success as an investor.

In that sense, it could be said that the stock market is like a wild bull trying to buck investors off its back. The investor’s objective is to find the bull he can stick with and ride until the buzzer sounds. The buzzer in this analogy represents your need to withdraw your funds from the market at a time of your choosing.

Be patient, as the tortoise wins the race: accept that there’s no easy or quick way to investment success.

The longer you invest for, the more it’s likely to grow in value and act as it was expected to at the outset. Two steps forward, one step back, is the way of investing; it always has been, and always will be.

Famous investment philosophies and their impact

Warren Buffett’s value investing philosophy

Benjamin Graham was Warren Buffett’s professor at Columbia University. He taught Buffett to buy low-priced businesses (often with slow-growing corporate earnings) because investors didn’t have high expectations for them.

Such stocks are called value stocks. When those businesses had years when they recorded higher-than-expected business profits, it surprised investors who then rushed in and bid those stock prices up.

When Buffett buys anything, he’s always looking for good value. That’s why he says his investment strategy is 75 percent Benjamin Graham. He prefers stocks that are priced low, relative to their business earnings, because value stocks, typically beat growth stocks.

Ray Dalio’s principles of risk parity and diversification

Ray Dalio's investment principles focus on risk parity and diversification to build resilient portfolios.

Risk parity balances risk rather than capital, ensuring that lower-volatility assets like bonds contribute as much risk as stocks - often using leverage.

His diversification strategy spreads investments across uncorrelated assets to perform well in any market condition.

His core belief? Uncertainty is inevitable, so a well-balanced, risk-adjusted portfolio is key to long-term success.

John Bogle’s passive investing and index fund revolution

In 1976, one man quietly started a revolution. That man was John Bogle. He launched the Vanguard 500 Index Fund, the first index fund available to individuals, and transformed the investment landscape forever.

His insight was mathematically simple - all market investors can only make the market return. After all, they are the market. On average, the investor ends up getting back the return, less their cost of investing.

Unless you’re 100% certain that you can pick a winning active fund manager (which is highly challenging, mathematically), you’d be better off aiming for consistent returns and keeping costs low. It’s the logic behind index funds.

While active funds have been known to occasionally beat the market, it’s rarely substantial enough to make up for the high fees. Index funds beat stock-picking funds any day, with relative certainty about the return you’ll get.

Benjamin Graham’s fundamental analysis approach

Benjamin Graham, the father of value investing, emphasised fundamental analysis to identify undervalued stocks with strong financial health. His approach focused on:

Intrinsic value – determine a stock’s true worth based on earnings, assets, and financial stability rather than market price.
Margin of Ssfety – buy stocks significantly below their intrinsic value to reduce risk.
Financial ratios – use metrics like P/E ratio, P/B ratio, and debt-to-equity ratio to assess a company’s value and stability.
Strong balance sheets – prioritise companies with low debt, steady earnings, and solid assets.

Graham’s principles form the foundation of modern value investing followed by the likes of Warren Buffett.

Common mistakes in investment philosophies

Investing can appear complex, but by starting with the evidence we can identify a simple set of rules that allow us to structure your portfolio to navigate through the years ahead and the variety of markets we will undoubtedly encounter together.

If you stick to these rules, take a long-term view, and have the discipline and patience to see the plan through, you have every chance of being richly rewarded.

Building your own investment philosophy

Steps to define a personal investment philosophy

1. Build on a strong foundation

A sound investment philosophy should be based on proven investment theory and empirical evidence. Understanding how markets work, the role of risk and return, and the impact of diversification creates a logical framework for making informed decisions.

2. Prioritise process over products

Instead of focusing first on what to invest in, start by establishing how to invest. A well-defined strategy, built on guiding principles and good investment practices, ensures consistency and discipline over time.

3. Recognise and manage behavioral traps

Investors often fall victim to emotional decision-making, market timing, and other biases that can be costly. Being aware of these behavioral pitfalls helps in maintaining a rational, long-term approach to investing.

4. Commit to a long-term perspective

Investing is a lifelong journey, not a short-term pursuit. By staying committed to a structured plan, adapting when necessary, and avoiding reactive decisions, investors can navigate market fluctuations with confidence.

5. Use principles as your compass

The right guiding principles serve as a steady reference point through changing market conditions. They help investors remain focused, resilient, and aligned with their long-term financial goals.

2. Cognitive Bias Cheat Sheet: A Simple Guide to Thinking Smarter

How to align an investment philosophy with your financial goals

Start by defining what you and your family's financial goals are over the short, medium and long term.

Are you looking to buy a house, or fund 30 years of retirement?

The time horizon for your objectives will determine the best approach to take to achieve them, but fundamentally your philosophy and beliefs shouldn't change.

Adapting investment philosophy based on changing market conditions

The human brain likes to find patterns to bring sense to things. Randomness doesn’t suit us. Instead, we like to think we’ve got control over our lives.

This is an issue when it comes to investing. We think we can identify patterns in past share prices and see market movements before they happen.

“If I buy here…if I bought here last time…I’d have made X amount, so why don’t I do the same thing this time with the same picture... I’ll be rich!”

Trying to ‘call the bottom’ only means that you need to find a way to ‘call the top’. It’s nearly impossible to accurately and consistently identify the best selling and buying positions in the market.

Long-term investing is where the actual returns get compounded.

Have confidence in the markets - capital markets are a reasonably efficient mechanism for allocating capital and rewarding those who take on the risks of company ownership (by owning shares) and lending money (by owning government or company bonds). We consider that they work pretty well, incorporating publicly known information into market prices quickly and efficiently. That makes them hard to beat.

When you're investing your hard-earned money, you want peace of mind you can bank on.

With this in mind, decades’ worth of world-leading academic study and Nobel Prize-winning research inform the construction and ongoing management of your investment portfolio.

As such, we prefer to rely on evidence, facts, simple mathematics and some straightforward common sense, rather than exaggerated claims, glossy marketing materials and the pursuit of the impossible.

Ultimately, its all about you and what the evidence says makes sense for your future.

“Thank you AES International for helping me and my family with your low cost no-nonsense approach. It is refreshing!”

Kristian Petersson

Chairman, KP Confidencia Ltd

“Obtaining reliable investment advice covering international financial markets and maintaining a balanced portfolio are important considerations for me. I found AES International attentive to these needs. Being authorised and regulated by the UK Financial Services Authority also helps provide protection and build confidence.”

Dennis Singleton

Retired, Foster Wheeler Kentz Energy Services Manager

“I am glad to confirm that the consistency and dedication to ensuring the best possible outcome for my investments that AES has provided in times of uncertainty and doubt has been greatly appreciated.”

Nicholas Sherwen

Independent Writing and Editing Professional

What is an investment philosophy?

An investment philosophy is a set of guiding principles that inform and shape a firm’s investment decision-making process. Some companies will issue their philosophy in a document called an Investment Policy Statement.

How does AES International invest?

We believe in low-cost, simple investment plans in a marketplace of near-limitless complexity. The strategies and solutions we utilise are selected specifically to address the objectives of each client.

Because we recognise that high costs are the greatest enemy of investment returns, we favour low cost, liquid and flexible investments.

Where possible, we employ exchange traded funds (ETFs), but we also access mutual funds.

A full range of investment solutions makes up our current investment universe. The ETFs we employ are simple, physically-backed and liquid securities, comprised of a range of asset classes.

As an entirely independent company, we can select from any assets, holdings and securities depending on what is most appropriate for each client — we're not tied to anyone.

All successful investing is goal focused and planning orientated. We believe you should have a basic investment plan and, unless the world changes, you should follow it.

We believe strongly in modern portfolio theory; that the greatest driver of your investment return is in your asset allocation, not your security selection.

Putting this into practice means that we save you money and make you money.

How important is an investment philosophy?

Very! Because in times of market upheaval and through the dark of uncertainty, your investment philosophy enables you to control your emotions, shut out the noise and focus on the things that really matter over the long term.

What is AES’ investment philosophy?

We adhere to a distinctive investment philosophy that is known as Evidence Based Investing.

We believe that:

Capitalism creates wealth
Markets are efficient
Risk and return are linked
Portfolio structure dominates
Diversify broadly
Costs of all kinds really matter

Deciding on which exact investments to use is a process, which begins with managing risk and return.

To do this we have implemented a strategic asset allocation using the major liquid asset classes of equities, bonds and cash, creating a risk adjusted range of portfolios, with options to match the risk requirements of our clients.

The higher the tolerance for investment risk which a client displays, the higher the allocation to global equities they receive. Conversely, the lower the tolerance, the higher allocation to fixed interest securities.

This strategic asset allocation determines the overall volatility of the portfolio.

Numerous studies over the last 30 years (Brinson, Hood & Beebower, 1986; Brinson, Singer & Beebower, 1991; Ibbotson & Kaplan, 2000) show that the main determinant (over 90%) of portfolio volatility results from strategic asset allocation.

Based on the overwhelming evidence that active fund managers do not outperform markets consistently, we have a passive approach whilst keeping costs as low as possible.

Passive means we use instruments which track indices, looking to participate in the market return.

How does AES' investment philosophy differ from other wealth managers?

Broadly speaking there are two distinct style of investing; active and passive.

Active management involves researching and selecting individual securities in a fund, according to a portfolio manager’s particular investment approach, with the aim of outperforming that benchmark.

The passive approach to investing (most typically using exchange-traded funds) seeks to construct a portfolio that replicates a benchmark index, such as the FTSE100 or the S&P 500 Index.

This means either buying every stock on the reference index or replicating the index – and in the same proportion.

Traditional asset managers and wealth managers believe that active has the potential to do well, and so choose this approach.

We believe (and our belief is backed up by scientific evidence) that the majority of the time, active fund management under performs net of fees and charges. We believe investors are better served by investing in a passive approach therefore.

What is evidence-based investing (EBI)?

Evidence based or passive investing aims to capture the returns of the market through a low-cost, diversified and long-term investment strategy.

We have adopted an evidence-based approach to investing that seeks to provide the greatest likelihood of a successful outcome for our clients.

The evidence provides very clear guidance as to the investment activities that organisations such as our own should be focusing on.

Passive, or index fund investing refers to an investment methodology that attempts to track a specific market index as closely as possible. The theory behind indexing as an investment strategy focuses on the zero-sum game: before costs, for every investment that outperforms the index of a chosen market, there has to be another one that underperforms it. But once costs are taken into account, it means that the low-cost index funds will have a greater probability of outperforming higher-cost actively managed funds.

Our three key beliefs which drive investment decisions for our clients are:

1. markets work efficiently

2. risk and reward go hand-in-hand

3. diversification is a vital tool, described by Warren Buffet as ‘the only free lunch in investing’.

Therefore, when constructing portfolios, we focus on structure, cost management and risk control.

The combination of this evidence-based investment approach coupled with disciplined international financial planning, and the management of behavioural bias, means the best financial solutions are delivered for our clients.

Why has AES chosen evidence based investing?

As professionals, we believe in following the latest proven academic research and putting it into practice. This in a sense is what evidence based investing is all about - and is the opposite to what active managers do; which is speculate on stock picking and timing the market.

How is evidence-based or passive investing going to benefit me as an investor?

Investing with a passive approach at its simplest means that you will never underperform the market.

We also think it’s important to manage expectations and highlight that the opposite side to not underperforming the market is that portfolios will not outperform the market.

A passive approach to investing also means that the fees you pay are kept to a minimum.

This is because active funds need to pay for expensive fund managers, teams of analysts and research from third parties. Passive funds do not have these expenses and so cost a lot less than active funds. Because they cost you less, more of your money is invested for growth.

Passive funds cost between 0.07% to 0.50%. Active funds usually cost between 1% to 3%.

These cost savings mean that your investments will grow unaffected by high costs normally associated by active investing.

Why is a consistent, long-term approach important to investing?

A consistent approach to investing is important as it allows for a repeatable investment framework to be put in place for selecting investments.

This is important as it lowers the chances of emotional decisions or behavioural bias negatively affecting the decision-making process; which could likely lead to poor investment outcomes.

Where a repeatable investment process is not in place, an investor cannot be sure that every selected investment has been made in a sophisticated way. This would likely mean that analytical approaches like quantitative and qualitative techniques are not being employed.

Does an investment philosophy cost me anything?

Our philosophy has been developed to ensure that you actually have the lowest possible costs - and this is ingrained as one of our key pillars: costs of all kinds really matter.

What are your market expectations this year and beyond?

We don’t know!

But we do know that talking heads on CNBC and elsewhere have successfully got it wrong time and time again!

So, we ignore this market noise and focus on identifying simple, cost-effective solutions that, within a defined asset allocation, offer the best chance for investors to meet their long-term investment goals.

We think this is pretty easy - and we don’t want to make it any harder, or more expensive for our clients by making speculative decisions based on baseless predictions that will probably turn out to be wrong!

What is an investment philosophy example?

Stock picking and market timing are extremely difficult, and most investors underperform due to overconfidence and emotional decision-making.

Instead, successful investing focuses on long-term growth, consistent returns, and minimising fees. A well-diversified portfolio, combined with disciplined behaviour, helps to maximise compounding returns.

Avoiding panic during downturns and resisting the temptation to chase trends are crucial to achieving sustainable success. While markets fluctuate, history shows they rise over time, making optimism a rational approach.

By staying invested and maintaining a long-term perspective, investors can benefit from the market’s natural upward trajectory.

What is Warren Buffett's investment philosophy?

Warren Buffett's investment philosophy focuses on value investing, buying undervalued, high-quality businesses with strong fundamentals and competitive advantages.

He follows a long-term, buy-and-hold approach, avoiding speculation and only investing in businesses he understands. Patience, discipline, and the power of compounding returns are central to his strategy, treating stock ownership as owning a real business.

How to determine your investment philosophy?

1. Define your goals – clarify what you want to achieve (e.g., retirement, wealth-building).

2. Assess your risk tolerance – understand how much risk you’re willing to take.

3. Consider your time horizon – decide how long you plan to invest.

4. Evaluate your knowledge – choose investments you're comfortable and knowledgeable about.

5. Choose your approach – pick a strategy that fits your goals (e.g., value or growth investing).
Stay Consistent – Stick to your philosophy and adjust as your goals evolve

What is Edward Jones investment philosophy?

Edward Jones' investment philosophy centres around building personalised, long-term investment strategies based on each client's goals and risk tolerance.

They focus on diversification to manage risk and seek steady, consistent returns over time. The firm emphasises the importance of financial planning and regularly reviewing portfolios to adjust for changing needs, with a strong commitment to client education and personalised guidance.

What is the fundamental investment philosophy?

The fundamental investment philosophy focuses on assessing the intrinsic value of assets through fundamental analysis, such as earnings and financial health.

It prioritises long-term investing, aiming to buy undervalued assets with a margin of safety to protect against risk. This approach seeks steady growth by investing in companies with strong fundamentals rather than speculative or short-term strategies.

How do I determine the right investment philosophy for me?

The best way to determine whether an investment philosophy is right for you is to work backwards from your long-term goals - will the philosophy help you to achieve these?

Can I change my investment philosophy over time?

As your financial goals, risk tolerance, and market evidence evolves, it may make sense to adjust your approach. Regularly reviewing your philosophy ensures it aligns with your current situation, and as you gain more experience, you might find that different strategies suit you better. The key is to remain flexible and adapt when necessary.

What is the best investment philosophy for beginners?

Own a broadly-diversified, low-cost portfolio of global assets, frequently rebalanced, academically ‘tilted’ and stay informed enough to leave this alone until your financial goals are realised.

How do professional investors develop their investment philosophy?

Professional investors develop their investment philosophy through experience, learning from both successes and mistakes.

They study financial theories, define clear investment goals, and assess their risk tolerance to shape their approach.

Over time, they refine their philosophy by adapting to market conditions and drawing on insights from mentors and successful investors.

How do I know my investment strategy?

Define your financial goals - short-term (low risk), medium-term (balanced), or long-term (growth-focused), assess your risk tolerance, choose an investing approach, diversify wisely, and review your portfolio periodically to make sure you're on track with your goals.

Investment Philosophy and Evidence-Based Investing

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