Your financial planning and investing strategies should have a scientific basis
A previous article, “The Solution – ONLY follow financial strategies that are scientific, passive, diversified, savings focused, risk controlled, low cost, and tax efficient,” suggested that individuals are much better off with a well-considered financial viewpoint. A stable set of financial beliefs can help you to keep focused and on track throughout your life. This follow-up article discusses the need for these beliefs to be based upon financial practices that have been established scientifically.
Without a scientific basis for personal financial decision-making, you have no way to distinguish a valid financial planning and investment strategy from an industry marketing sideshow or a trip to Las Vegas.
Regarding best practices in personal financial planning and investing, objective information about what tends to work and what tends not work can be found. However to find this objective information, you must know where to look.
Academic specialists in finance and economics do most of the objective theoretical and statistical research on subjects that directly or indirectly affect the financial affairs and well-being of individuals. The scientific finance literature that they produce exists in bountiful quantities and is the source of the best practices that The Skilled Investor uses. (See: How does The Skilled Investor find and summarize scientific investment information?)
Most of this objective and enlightening information is “hidden” in academic journals and working papers. With the Internet, however, much of this information is now “hidden in plain sight.” One of the primary objectives of The Skilled Investor is to do much of the required digging and synthesis for you. (See: What is The Skilled Investor and who will find it useful?) However, if you would like to do some searching yourself, see this article on one way to get started: Using Google Scholar to find scientific finance articles.
Scientific finance and its limitations
When you decide how to plan financially and how to invest, you ought to be able to point to the high quality research work of some honest, objective, highly-educated, skillful, well-respected, and thoughtful people regarding financial best practices. These people should have: a) developed theories, b) done their homework, c) run the numbers, d) published their findings, and e) had their publications stand up to peer-level criticism. This is a crude summary of the scientific method applied to finance. (See: What is investment science?)
Some readers, particularly those [...]