RESOURCES

Start the year off right by getting started on these five top financial goals.

I’ve coined the term Investing 3.0 for an approach to investing that is newer than the other two, and which I believe solves the problems inherent in both Investing 1.0 and Investing 2.0. Investing 3.0 is quantitative investing. It is also called rules-based investing, factor-based investing and evidence-based investing. Some have coined factor-based investing “smart beta” because it gives exposure to something other than the full market. It acknowledges the difficulty of using skill to find stocks that will outperform and instead relies on a basket of stocks to average out the performance of each. It reduces the cost and emotional pitfalls associated with using human research and management teams to select stocks. It also seeks to not only avoid the excesses of popular beliefs, but to systematically capitalize on these excesses. Investing 3.0 focuses on systems rather than opinions. It learns from behavioral finance theory where opportunities should exist and then analyzes data to test rules for capturing those opportunities. These rules are then followed mechanically, with the understanding that sometimes the crowd is right, but on average, the rules win. The cost of rules-based funds generally falls somewhere between those of index funds and actively managed funds.

Investing 3.0 solves for the inevsting inefficiencies caused by human bias, while reducing both the high management fees of active investing and high phantom costs of passive investing.

The economy could get significantly worse, and investors should not panic when headlines turn from complacent to catastrophic. Economic cycles come and go.

ESG investing has two claims – first that it beneficially impacts the world through directing capital to where it will make a positive difference. Second is that by including an ESG framework in the investment process, investors will be rewarded with a better risk-adjusted financial return. We will examine these claims, one by one.