How can factor investing help me?

Category: Investment

Back in the ’70s, an academic called Stephen A. Ross figured out a nifty way to give your returns a bit more oomph.

He studied at famous schools like Caltech and Harvard and wrote a paper that changed how we invest.

What did the paper say?

He popularised “factor investing,” which simplifies investment decisions based on golden rules.

These golden rules include:

  • Value: Snagging shares in companies that are a real bargain.
  • Size: Oddly enough, the underdogs (smaller companies) sometimes outpace the big boys.
  • Momentum: Shares on a winning streak often keep on winning.
  • Quality: Firms that grow steadily and do not bite off more debt than they can chew.
  • Volatility: Shares that keep a steady head without being too jumpy.

Our favourites are value and size – they are straightforward and can pack a punch.

Okay, but what does that mean for my money?

Trying to outperform the market by trying to guess what it might do is futile, but adding factors like size and value can boost returns over time. Think of your savings as a garden. You can let it do its thing or sprinkle on some plant food (these factors) for an extra bloom.

Factor investing is not always a guaranteed win and may lag the broader market. However, it is a long-term strategy. If you feel uneasy about this approach, feel free; we can keep it simple. Your comfort and needs are our top priority.

With insights from some of the best brains, you can be confident about where your money’s going.

If you want to see how we can help, you can book a free, no-obligation chat here.

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