Your Investment Plan – What’s It Based On?

Your Investment Plan

“Where is the wisdom we have lost in knowledge? Where is the knowledge we have lost in information?1” While these questions were originally directed to modern culture at large, we think that they can also be applied to investing. Investors must forge a path, or hire a guide, through information and knowledge leading to a wise investing process.  

Investors have to make choices about how to place their capital among stocks, bonds, commodities, real estate, crypto, or cash based on some guiding principles. Let’s start with the fact that nothing is guaranteed in investing – full stop. If investing does not offer guarantees, why do people do it? And why does the government allow retirement savers to invest in publicly traded companies? The capital market has offered attractive wealth building opportunities for generations of long term investors.

Exhibit A2

Yet, the only known stock performance occurred in the past. Disclaimers remind us that past performance is not indicative of future results. The past performance numbers can vary annually, often dramatically, but over time and with time, begin to demonstrate a narrow range of consistency. It is often cited by those who study market history that stock investing has delivered about 10% per year growth since the early 1900’s. More importantly that just the range near 10% growth that the broad stock market has experienced, is the fact that stocks have kept up with inflation and been able to deliver wealth growth.

Exhibit B3

So, will the capital markets continue offering the potential to build wealth for new and existing investors? Only time will tell, but let’s consider some of the core ideas investors can use to create their investment plan. Branning Wealth encourages all investing decisions to be made according to a personal plan. Once the plan is in place, our firm focuses on foundational investing tenets from which investment decisions flow.      

Mechanism vs. Businesses: Confusing the Stock Market for Investing 

The market is an amazing mechanism. It effectively matches sellers and buyers each trading day. Everyone gets what they desire – sellers get liquidity, buyers get a company or investment that they expect will perform toward their goal and time horizon. John Bogle, Founder of Vanguard, said that, “The stock market is a giant distraction to the business of investing.” 

The stock market allows investors to access investment opportunities in underlying, publicly traded businesses that have cash flows or potential cash flows. Over time, these cash flows typically return dollars to investors (via dividends) and over long periods of time, groups of the underlying businesses tend to increase in value. Investment professionals call the sum of dividends paid by a company plus the appreciation of its price in the stock market “Total Return.” It assumes all dividends are automatically and immediately reinvested by buying more of the company’s stock.   

Of course, the economy and businesses go through cycles and swing up and down, therefore, the broad market does also. It is important to keep in mind that investors purchase actual businesses that make goods and services that consumers are going to buy. Some ideas will work, others will fail. If an investor remembers that they are handing money over to the world’s business entrepreneurs and employees who are striving to solve problems we face or making things we need or want, then we begin to recognize the difference in the market and the investment. The market matches investors to business (as a business itself), and investors get to own a piece of their preferred selection of the underlying businesses. 

Every single day that the stock market is open, buyers and sellers are matched up – there is a seller for every buyer and a buyer for every seller. They both win because they get what they want: buyers get a business or group of companies they expect will deliver the return they seek and sellers in turn get what they prize most, the liquidity and optionality of cash. Investors with a plan can use the liquidity mechanism that the stock market provides when they are running ahead of their plan instead of feeling forced to sell into broad market declines.  

Using the Stock Market as an Investor through Diversification

Market returns tend to be concentrated among the top performing stocks. Ideally, an investor would just pick the best stocks. The problem is that this is impossible without the benefit of hindsight. Therefore, diversification offers a solution since future individual stock performance is unknowable. Harry Markowitz, the famed founder of modern portfolio theory, is reported to have said, “Diversification is the only free lunch.” No one knows which of the great ideas will create the most value over time, but if an investor owns broad exposure to the companies that comprise the market, a diversified approach, they have the greatest potential to capture the returns offered by the market at large. 

Arizona State University professor Hendrik Bessembinder studied stock performance from 1926 through 2019 which found that “The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform.” Bessembinder observed that the largest returns come from very few stocks overall — just 86 stocks out of thousands available for purchase have accounted for $16 trillion in wealth creation, half of the stock market total, over the past 90 years. In fact, all of the wealth creation can be attributed to only four percent of the thousand top-performing stocks4.

Diversified investors with a plan should ignore the cycles that create stock market gyrations and focus on the reality beneath their portfolios – the global companies, industries they own, the solutions and problems these collective companies solve and seek to solve. 

Expectations for Returns

Anyone who buys an individual bond and holds it to maturity knows exactly what its return will be. But no one can know future returns in stocks. The nature of investing assumes the concept of an unknown outcome, which is uncomfortable. Investors should anticipate feeling uncomfortable from time to time and more frequently than anyone would like, for an extended time period. As well as the unknown outcome, the investor can select businesses that generate cash flows. Over time, most publicly traded companies have the expectation of generating a profit or paying out dividends to shareholders.

Finally, investors can evaluate market history for clues as to how different types of businesses and stocks may perform over time. There are so many combinations of factors that are built into the performance of market returns – wars, The Great Depression, periods of high inflation, periods of high unemployment, cycles of civil strife, etc. Through all these stomach-churning, chaotic days and months, somehow, the market has been able to deliver a reward for those who choose to take the risk and stay the course over time horizons of 15 years or longer. That is, the S&P 500 has never had a negative return over any span 15 years or longer since 1928.

So, how are investors to build their portfolios? While the market does not offer any guarantees, investors should view their market investments as actual businesses. The underlying companies investors in stocks own can be seen through the lens of expectations about likely future outcomes. Risk and reward are opposite sides of the same coin, inextricably linked, that go hand in hand. Risk is usually interpreted as the variability of returns, and the higher the expected return, the higher the variability. If the price of a stock happens to be below the price you paid when you bought it at the moment when you have to sell it for some reason, you will suffer a loss of your original capital. Expected return is the amount of profit or loss an investor can anticipate receiving on an investment5.

Portfolio Construction Foundations – Data, Academics, People

What voices do you hear as you invest? Who do you listen to as you choose investments for your 401k, IRA, non-IRA, or Trust accounts? Your successful neighbor, cousin, a broker, or the savvy bloke from a party? Investing for the long term will regularly make the most well-heeled, savvy investor look incredibly dense in certain market conditions. No one is right about every call, all the time in every market. And if you find yourself with an advisor who claims to be – don’t be gullible!

Investors must be careful to distinguish between a well designed, long term investment process and short term outcomes. Even the best processes often deliver poor short term results. Yet, the only thing an investor can control is the process, not the outcome. How can investors follow a wise investment process for their decisions? What are trustworthy portfolio sources? Who is reliable for portfolio construction information? 

At Branning Wealth, when we build a plan and investment portfolio we rely on three domains to inform our advice:

  • Data. Data is the information itself and the sources of the data. Information is the cornerstone of the investing decision process. So it is vital that the sources of data are as transparent and complete as possible. The data must be carefully assembled and monitored. Once the information is collected, investors can begin evaluating the information in the data. For example, how have the different asset classes reacted over different time periods. How expensive are asset classes relative to the past and to other things an investor could choose to buy? How can you put the probabilities or odds in your favor over the long run?
  • Academics6. The work produced by the academic community is an essential component in delivering sound, tested, and reliable advice. Academics provide observations and knowledge about data. We read and study the work of researchers who have tested or observed in trials various concepts in finance and financial planning. Academic work is grounded in and guided by data, informed by testing and retesting, and reviewed by a peer network who can challenge, extend or reject a theory. The work of academics inform best practices while deepening an understanding of how things work. These researchers and professors devote their lives to understanding how things work. The work of scholars is to deliver the unvarnished truth about a finance practice or theory or financial planning application without a sales agenda. 
  • People7. Fiduciaries are people or companies with a fiduciary mandate. We place trust in individuals who are guided by a moral and ethical framework that seeks first to act in the interest of others. Typically, these individuals have taken an oath to act accordingly. Fiduciaries offer education, not a sales pitch. They strive to offer a balanced, humble approach that is sober to the risk and possible returns. Additionally, we do our own research and work. 

Seasoned investor, Howard Marks, was recently interviewed at Goldman Sachs8. He reminded the professionals in the room that, “everyone reads the same news, but not everyone responds the same. Above average investing exposes you to the risk of being below average. Investors must dare to be different in order to achieve. 

We encourage investors to make a plan, follow a well designed investment process and stick to it.

Jason K. Branning, CFP®, RICP®


  1.  Choruses from The Rock (1934) Source: 
  2. Dimensional Fund Advisors
  3. Dimensional Fund Advisors  
  6. Examples included Harry Markowitz, Eugene Fama, Kenneth French, William Sharpe, Wade Pfau, Daniel Kaheman, Stephen Huxley, Michael Finke, David Blanchett.
  7. Examples of the professionals we admire David Booth, John Bogle, Burton Makliel, Warren Buffett, Larry Swedroe, Meb Faber, Brent Burns, Michael Kitces, Bob Veres, Marjorie Fox, Eleanor Blaney, Dana Anspach, Ben Carlson, Morgan Housel, Katie Koch, Lyn Alden, Bob Doll, Howard Mark, Jeremy Grantham, James Montier.
  8. GoldmanSachs. (2022, June 30). Howard Marks, co-chairman of Oaktree Capital Management. YouTube. Retrieved August 12, 2022, from

The information provided in this report is for informational purposes and should not be considered a recommendation or solicitation to purchase or sell any particular security or investment strategy. Investments are not insured, subject to market risk, including the loss of principal. Investment strategies described may not be suitable for all investors. Equities are subject to market risk meaning that stock prices in general may decline over short or extended periods. The information contained does not consider any investor’s investment objectives, particular needs, or financial situation. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate. Information in this presentation has been obtained from sources believed to be reliable but cannot be guaranteed. Additional information is available upon request.

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