Statistically Probable Investing

statistically probable investing - distributions

We are often asked, “What’s your investment thesis?”

Although various investment approaches impact your accumulation of wealth differently, we don’t believe selecting the “best” investment thesis is the most critical decision. The largest long-term influence on your wealth—unless you are already independently wealthy—is more likely whether you have implemented a disciplined investment plan. Systematic contributions plus confidence with the level of investment risk in your portfolio encourages you to stick with your plan through the inevitable ups and downs of the market.

So what is our investment thesis? I believe our investment approach is best described as Statistically Probable Investing. This means that we favor an approach that relies on historical evidence to select investment portfolios with a high probability of generating above-average risk-adjusted returns.

Core tenets of Statistically Probable Investing:

  • Invest globally for broad exposure and diversification.
  • Favor smaller companies for higher long-term returns.
  • Favor value stocks for higher long-term returns.
  • Include Treasury bonds for downside protection and reduced risk.
  • Use low correlation, alternative investments to strengthen diversification.

Statistically Probable Investing philosophy is especially fitting for employees at large technology companies—like Amazon and Microsoft.

As an employee of a large tech company, your future net worth is tied to the performance of your company’s stock and that of the tech industry in general. Amazon—in particular—relies heavily on Restricted Stock Units (RSUs) for employee compensation. Since you already have a large “bet” on your company’s performance (your job, 401K match, and RSUs), your outside investments should provide a counterbalance.

The Wealth45 approach helps you by:

  • Broadening your holdings by way of investments in a globally diversified portfolio of stocks;
  • Tilting your investments away from technology by including equity funds not tied to market-cap-weighted indices—which have a high exposure to technology firms;
  • Overweighting Value vs. Growth stocks—high-growth tech companies are generally classified as Growth stocks;
  • Including alternative investments with historical low correlation of returns to tech stocks.

By applying Statistically Probable Investing tenets, your investment portfolio can be tailored to your time horizon and your personal comfort level with the inherent variability of investing.

Hazardous Advice—Reaching for YieldRSU Income & Mortgage Qualification
Latest Insights