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Factor-Based Investing

Updated: Feb 16, 2023

RL155 — Factor-Based Investing

On the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson break down Factor investing and why it's such an effective investment strategy. They cover topics like the basics of Factor investing, the diverse approaches to multi-factor investing, and smart investing approaches to help you beat the market and maximize returns.

[00:00] Introduction

[04:48] Why Most People are Research-based Investors

[07:00] What is Factor Investing?

[12:16] Common Attributes of Factor Investing

[15:47] Understanding Multi-Factor Investing

[18:20] The Common Sense Test

[21:22] How to Protect Yourself from Risky Investing

[26:30] The Momentum with Volatility Control Strategy

[31:10] Comments on The Momentum with Volatility Control Strategy

[35:50] The Basics of the Value, Quality, Momentum, and Timing Strategy

[38:58] Unique Measures of Value

[43:27] Analyzing a Snapshot of a Morningstar Portfolio

[47:15] Weighting and Stock Analysis

[50:43] The Tremendous Outperformance of Growth Versus Value

[55:30] Why Investors Must be Willing to Endure Periods of Underperformance

[57:55] The Quality, Larger Value with Income Strategy

[01:05:55] Performance Numbers and Why Investment Strategies Behave Differently

[01:10:45] Resources for Factor Investing

[01:13:52] Parting Thoughts

For more links and the full show notes keep scrolling down!

Roshan Loungani can be reached at or at 202-536-4468.

Erik Olson can be reached at or 815-940-4652.

Adrian Nicholson can be reached at or at 703-915-8905.

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Full Show Notes:

What is Factor-Based Investing?

Factor-based investing is an investment strategy that focuses on capturing returns from underlying factors such as size, value, momentum, and quality of a security. The idea is that these factors have a persistent effect on returns and can be used to build portfolios with enhanced risk-adjusted returns. Factor investing relies on its ability to deliver returns that are uncorrelated with traditional market indices while providing diversification benefits. Additionally, factor investing can help investors achieve specific investment objectives, such as enhancing risk-adjusted returns or tilting portfolios towards a desired factor exposure.

By incorporating factors into your investment strategy, you can achieve higher risk-adjusted returns and build a more diversified investment portfolio. However, just like most investment strategies, Factor investing is only ideal for some people and won't necessarily work in your portfolio.

Why You Need to Find Your Investment Personality

One of the main drivers of investment success is finding your investment personality. This involves understanding your financial goals, risk tolerance, and investment style. If you invest in something you're not comfortable with, you won't have the level of comfort it takes to get through difficulties in a down market.

To find your investment personality, start by assessing your goals and evaluating your risk tolerance. You should also consider your investment style, reflect on past experiences, and seek the advice of a financial advisor before making huge decisions. Your personality will ultimately help you make informed investment decisions that allow you to weather the storm during a down year.

Links and Resources:

All opinions expressed by podcast hosts and guests are solely their own. While based on information that they believe is reliable, neither Arete Wealth nor its affiliates warrant its completeness or accuracy, nor do their opinions reflect the opinion of Arete Wealth. This podcast is for general informational purposes only, and should not be regarded as specific advice or recommendations for any individual. Before making any decisions, consult a professional.

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