Factor Investing

[Kirk W]

Factor investing can offer enhanced returns

What is factor investing?
To begin with, factor investing is also known as smart beta investing. Factor investing is an investment approach that involves designing a portfolio of stocks, based on a certain factor or set of factors. The factors here can be value, momentum, quality, price, alpha, low-volatility etc. For example, if an investor wishes to have an element of growth in his portfolio ..
 

 

[Randyretired]

I like investing in some specific categories of stocks with a small portion of our portfolio.   Usually I can find a mutual fund that does that.  I like to spread my investments  in a number of stocks and avoid the research involved in individual stock picking.  If there is an index fund for that category I usually check that out.  My individual stock picking has had variable results.  

[Kirk W]

I have my entire 401k in a managed fund and that is about 70% of our invested assets. So far we have only withdrawn the "required minimum distribution" or RMD on an annual basis, although we did take extra when we bought a house again after leaving fulltime. The other 30% is kept mostly in CD's, T-bills, and other shorter term investments which I manage. At our age(80+) the appeal of individual stocks has faded and I'm almost completely out of those. But I do still enjoy following things most of the time. Since Pam has never been into such things and we are at an age that one of us could pass on quite suddenly, I keep our son the financial analyst informed and minimize my direct activities. Our fund manager has a history of doing very well for us for over 20 years now.

[Randyretired]

I self direct our investments.  I started some years ago and used small amounts to try some different things.  I even tried options.  My experience has been that index funds perform well over time and are simple.  I spend very little time managing our investments and I invest long term.  I don't chase short term investments. Unlike many our largest investments are not in tax deferred accounts (long story) so I try to manage our taxes. This of course has some limitations.  If we were to move a large portion of some of our accounts the tax consequences would be significant.  We also have some real-estate investments that are for our enjoyment and maybe some profit. We have durable power of attorney documents in place for when one and both pass or are no longer competent. I tried some advisors but self management worked best for us.  Everyone's investment tolerance is different. These posts reminded me I should again discuss my investment preferences with the loved ones on those documents.

[MadeItToFT]

Self Directed having had no luck with managed accounts in many years previous.   Used to buy into a "few" individual stocks swing trading them, when they seemed to have a trend moving (wave lines) ie; MSFT and similar, Dogs of the Dow, Dividend Aristocrats, banks, utilities etc.

Now as we have got older we want to simplify with being more hands off so prefer S&P500 index, a handful good dividend payers and using the 3 bucket system have some cash derivatives and GICs the latter which is not keeping up with inflation but paying currently around 5.10%.  

 We find the 3 bucket approach enables us to not feel forced to sell anything when the market is bearish, we can try to ride it out hopefully on a recovery as has been evidenced over the years.   Of course history is not indicative of the future but what else can you go by?

[Kirk W]

4 hours ago, Randyretired said:

I self direct our investments. 

Does that include a 401k and IRA? My 401k is by far out biggest investment amount. Prior to retirement I did manage it within the structure of my employer's plan, which had range of different types of funds but no individual stocks. I also had some money in bond funds, but no longer. When I retired I rolled the 401k into an IRA that I did manage for a time but several years ago I put it into a managed fund where it has performed very well. The fund manager recently changed firms and like most of his customers, we went with him.

 

[Randyretired]

I also rolled over to an IRA but it is quite modest.  I walked away from a management position in a large company at the age of 36.  Worked for my self after that. Most of our investments are not in retirement accounts.   In any case the accounts are all self directed.  I have apps that allow  me to buy, sell and so on.  Of course if I were to move my market investments, capitol gaines taxes would be due so that doesn't happen often.  Because of that tax planning must be considered before any moves.  The majority of our funds are in mutual funds and most are index funds with really low costs.

[Kirk W]

It is very difficult to give much advice on investing to a person that we know little about. Questions like how much money and how long a time will it be invested are key. Your age and how much risk you can handle are very important. The amount of money you wish to invest is also important. in general, the highest investment returns come from the most risky investments and the safest investments pay the least. You can get things like a savings account or CD(certificate of deposit) at your local bank, but they typically do not pay enough to keep up with inflation. For most other investments, you will need a broker who charges a fee of some type. 

Investments like stocks, bonds, and real estate generally do best when held for a long time. Mutual funds are fairly stable and thus less risky but they are not very liquid and the returns vary widely. For shorter term, more liquid investments I prefer Fed Funds and CDs from the secondary market as they are easy to buy and just as easy to sell if you need money, but most invested funds will take several days to a week to access. While those who have a lot of skill and also luck, you can choose your own investments but you still need a broker to make the purchases and sales for you. For most people who have little experience, a good investment advisor/manager is a better choice. Some of the most attractive funds one can invest in will require a minimum investment that is pretty high. The fund that I'm most heavily invested in requires a minimum of $100k to join but there are many ways to invest in smaller amounts.

With more information about how much you wish to invest and for how long, we could probably offer better advice. 

[Randyretired]

Investing in stocks can be done in many different ways.  For those that wish to invest in specific companies one can purchase stock.  Mutual funds group a number of stocks or bonds together so that the investment is spread over a number of stocks or bonds.  By spreading an investment over multiple assets the risks typically are less but the profits are also grouped.  There are also exchange traded funds (ETF) that are lot like mutual funds but bought and sold like stocks.  ETF's and mutual funds can invest in a particular segment of the market or be more broadly invested.  There are even funds that invest in all of the stocks.  The funds can be actively managed meaning someone is picking the investments or index funds that invest to follow an index or specific groups of stocks.  ETF's and mutual funds have different minimum investments.   Some are as low as a few hundred dollars and it goes up from there.  This allows small investments but spread over a number of investments.  For new investors this is my recommendation but market investments typically are long term as the values fluctuate daily, hourly and even minute by minute.  My tip to get started would be purchase a mutual fund.   There are thousands of different funds and the risk reward varies wildly.  I have a S&P 500 index as my base fund.  This is an index fund that specifically follows the S&P 500 which means I own a piece of the 500 largest stocks.  This fund values fluctuates with the market and can have gains or losses but with that many companies the risk is diversified.  Since the inception the S&P 500 has averaged a little over 10%.  I have been in this fund for around 30 years or more and my investments have averaged a little over 12%.  It is important to remember that there isn't any guarantee that will  continue.  Some funds chase larger returns and the risk varies but for me this is my largest single investment.   It fits my risk level and I don't study the finacials of companies. I purchased this fund over time and I don't buy and sell to time the market.  My investments are through a couple of companies but I like Fidelity and their app.  This let's me buy and sell a variety of investments right from my phone and money can be moved to and from my bank usually within a couple of days.  Many times investments,  even stocks are traded without a fee.  Many investment companies offer similar features.  There are also financial advisers that will invest your money or guide you for a fee.  I am certainly not an expert but this may give you some ideas.  There are many more ways to invest than this and the risks/rewards vary widely. 

Edited June 18 by Randyretired

[Vladimir]

On 6/17/2024 at 2:25 AM, emilyhlib said:

Very good topic. I started reading about investing and maybe I will start doing it later. Maybe some recommendations for a newbie?

If you find a "magic" lamp and rub three times.  When the Genie shows up and says..........

Your choice.

You can know EVERYTHING about investing when it comes to companies.

OR 

You can know EVERYTHING about the tax code and how it affects your investments.

Pick the latter.

[Kirk W]

12 hours ago, Vladimir said:

Your choice.

Does that mean that you advise not to invest? I don't believe that I ever met anyone who knows "EVERYTHING" about either of those subjects. 

[Bobbybrown111]

I used to be into investing and discovered factor investing, or smart beta investing, to be quite effective. It entails creating a stock portfolio using factors such as value, momentum, or low-volatility. This method really boosted my returns by honing in on specific investment criteria.