­­­­In this podcast episode, we’re diving into the investment philosophy at Millen Wealth and why it’s built on evidence-based strategies designed to optimize long-term wealth creation. If you’ve ever wondered how to invest better and avoid common pitfalls, this is for you.

Common Costly Investors' Mistakes

Many investors struggle with biases, short-term thinking, and reacting to market movements. Some pay high fees for actively managed funds, believing they’ll outperform, while others lack the knowledge to make informed decisions. By learning from decades of research, you can avoid costly mistakes and build a portfolio that aligns with your financial goals.

Why Investment Philosophy Matters

At Millen Wealth, we believe that financial planning and investment management are equally important and complementary. A solid investment strategy is grounded in research and designed to provide consistency across generations. Our approach is not about picking stocks or timing the market but about leveraging well-documented investment principles to optimize returns and manage risk.

The Power of Evidence-Based Investing

Instead of relying on subjective stock-picking, our investment philosophy is based on three key academic theories that have transformed the world of finance:

Modern Portfolio Theory (Harry Markowitz, 1952)

Emphasizes diversification to maximize returns for a given level of risk

Highlights the importance of combining assets with low correlation to reduce overall portfolio volatility

Establishes the concept of an efficient frontier, where portfolios should aim for the highest return per unit of risk

Capital Asset Pricing Model (CAPM, 1960s)

Introduces the concept of market risk premium, explaining why taking on more risk should lead to higher expected returns

Defines beta as a measure of an asset’s risk relative to the market

Reinforces the idea that risk and return are directly linked

Efficient Market Hypothesis (Eugene Fama, 1970)

Argues that market prices reflect all available information at any given time

Suggests that trying to outperform the market through stock-picking or market timing is futile over the long term

Supports passive investing as the best strategy for most investors

Factor-Based Investing: A Step Beyond Index Funds

While index funds offer broad market exposure at low costs, factor-based investing builds upon this foundation by incorporating specific factors that have been shown to enhance returns.

The Fama-French Three-Factor Model (1990s) introduced three key factors that explain stock returns:

Market Factor – Stocks generally outperform risk-free assets over time.

Size Factor – Small-cap stocks tend to outperform large-cap stocks.

Value Factor – Stocks with high book-to-market ratios tend to outperform growth stocks.

This model was later expanded into the Five-Factor Model (2015), adding:

4. Profitability Factor – Highly profitable companies tend to deliver higher returns.

5. Investment Factor – Companies with conservative investment strategies tend to outperform aggressive spenders.

These factors help explain 90-95% of portfolio return variations, leaving little room to differentiate stock-picking skill versus luck.

Canada’s Investment Landscape: Lagging Behind but Full of Opportunity

Despite overwhelming evidence supporting passive and factor-based investing, Canada remains behind the U.S. in adopting these strategies. In 2023, passive funds surpassed active funds in the U.S., but in Canada, 85% of investments are still actively managed—often with high fees and lower returns.

This presents a massive opportunity for Canadian investors to shift towards lower-cost, higher-efficiency investment strategies, reducing fees and improving long-term returns.

Key Takeaways for Investors

• Investment decisions should be based on evidence, not speculation.
• Avoid high-fee actively managed funds that underperform in the long run.
• Diversification, risk management, and long-term thinking are key.
• Factor-based investing provides a systematic way to enhance returns beyond market exposure.
• The best investment strategy is one that transcends generations and doesn’t rely on a single advisor’s stock-picking skills.

Want to Learn More?

At Millen Wealth, we’re here to help you optimize your financial future. We offer free 60-minute financial reviews where we discuss your investment strategy, retirement planning, tax optimization, and more.

­Book a free consultation­

Guillaume Girard, CFA CFP | Sam Lichtman, CFP
Millen Wealth Advisors

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Disclaimer: Mutual funds are offered exclusively through Portfolio Strategies Corporation. Mutual fund investments are not guaranteed, as their values change frequently, and past performance may not be repeated. This message is for informational purposes only and does not constitute an offer to sell or a solicitation to buy any mutual funds. Please consider your risk tolerance and financial situation before investing, as mutual funds carry various risks depending on the nature of the fund. You should read the applicable fund facts or prospectus document carefully before investing. For personalized advice tailored to your circumstances, please contact us directly. Data and research from Dimensional Fund Advisors using Index Funds. Actual portfolio returns may vary.