Factor-Based Investing Can Help Retirees

Factor-based investing

Investing is essential for everyone who aspires to retire, regardless of age. Through its ability to compound asset growth, investing provides a blueprint for financial success when done in a diversified manner. Still, it is crucial to note that investing carries the risk of principal loss when pursuing a reward.


Many strategies have sprung up in an attempt to generate higher investment yields over the years. One of those is Factor Investing, which is the focus of today's blog post.


Five factors

The aim of Factor-based investing is to select assets with a higher potential for return while concurrently lowering risk through economic, fundamental, and statistical analysis.

The result focuses on various investment factors that can provide an advantage compared to traditional investment models. The most commonly utilized factors include momentum, size, value, quality, and volatility.

Momentum-based factor investing analyzes trends to see which companies have performed over the past rolling twelve-month period. Based on historical data, those who have outperformed the broader market have an increased probability of continuing their outperformance. Therefore, identifying and investing in these above alpha companies can be a lucrative way to deploy assets.

A size-based factor investing strategy focuses on investing in smaller companies than large-cap equities, which dominate the S&P 500. Generally, the smaller the company, the greater the chances are of both failure and increased return. After all, it is easier for a $1 billion company to double or go bankrupt than for a $1 trillion company.


Valuation-based factor investing looks at company valuations to determine if a company is under or overpriced compared to others in the marketplace by analyzing earnings per share, cash flows, and other financial indicators. If the company is poised to increase its profits and is undervalued relative to others, its share prices will likely rise.


A quality-based factor investing approach emphasizes locating stable, profitable companies with a competitive advantage. Such companies have historically tended to outperform those that are in distress. Resultantly, investing in these companies provides better yields and more consistent returns.


The final factor investing approach is volatility-based investing, which aims to identify stocks that tend not to fluctuate substantially in their valuations since these companies tend to outperform those with significant share price swings.

Multiple facets for success

Investors who deploy factor-based investing strategies often combine multiple factors to create a multi-pronged approach to lower investment risk and increase returns. Such diversified investment portfolios have the potential to provide clients with risk-adjusted returns that outperform relative indexes due to active management.

Could factor-based investing fit into your retirement plan?

At Lundeen Abrams Advisors, we believe each client is different, and we are here to help you achieve your financial goals through holistic wealth planning. Please reach out to us and set up a complimentary financial review today! Whether you are nearing retirement or are already in it, factor-based investing is worth considering, and we are happy to show you how such a strategy could help you achieve your goals.

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