Discover how academically backed investing strategies can lead to long-term success—without the guesswork.
If you’ve ever felt like picking stocks is a bit like throwing darts at a board blindfolded, you’re not alone. But here’s the good news: smart investors—especially retirees—don’t need to rely on hunches, headlines, or hot tips. There’s a better way to invest. It’s called factor investing, and it’s backed by decades of data, Nobel Prize-winning research, and solid long-term performance.
Let’s explore what factor investing is, why it works, and how retirees like you can use it to build a smarter, more dependable portfolio.
✅ What Is Factor Investing?
Factor investing simply means choosing investments based on traits (or “factors”) that have been proven to deliver better risk-adjusted returns over time.
These are not random trends. They’re well-researched patterns identified by academics and used by some of the world’s top money managers—including Warren Buffett, BlackRock, and Dimensional Fund Advisors.
The five most powerful and proven factors are:
- Size (small companies tend to outperform large ones)
- Value (cheap companies beat expensive ones over time)
- Momentum (what’s going up often keeps going up)
- Quality (strong, profitable companies perform better)
- Low Volatility (steadier stocks can deliver strong returns with less drama)
Let’s dig into each one—with real-world performance data.
📈 Factor #1: Size – Small but Mighty
Small-cap stocks often beat their large-cap cousins over time. Why? Smaller companies have more room to grow, and investors demand higher returns to take on the extra risk.
Performance Example:
According to data from Fama and French (two pioneering academics in factor research), from 1927 to 2023, U.S. small-cap stocks returned an average of 11.9% annually, compared to 10.2% for large-cap stocks.
That may not sound like a huge difference—but over 30 years, a $100,000 investment grows to:
- $1.88 million with small-caps
- $1.73 million with large-caps
That’s an extra $150,000 just for tilting small.
✅ Best for retirees who want long-term growth with a slightly higher risk tolerance.
📉 Factor #2: Value – Buy Low, Reap Rewards
Value investing is the time-tested idea of buying companies that are trading for less than they’re worth—based on earnings, dividends, or book value.
Performance Example:
From 1927 to 2023, value stocks delivered an average annual return of 12.8%, while growth stocks (those with high valuations) returned 9.8%.
Even over shorter periods, the value premium tends to reassert itself after periods of underperformance—like it did post-2020.
✅ Perfect for retirees who love a bargain and want to avoid overpaying.
📊 Factor #3: Momentum – Go With the Flow
Momentum investing says: buy what’s already going up. It may sound counterintuitive, but studies show that recent winners often continue to outperform for months or even years.
Performance Example:
From 1927 to 2023, momentum stocks in the U.S. delivered 12.8% annually, beating the broad market average of 10%–11%.
Even big fund managers like AQR and iShares use momentum strategies to juice returns.
✅ Ideal for retirees who want to ride trends without constantly trading.
🏆 Factor #4: Quality – The Cream Rises
Quality companies have strong balance sheets, stable earnings, low debt, and high profitability. Think Johnson & Johnson or Microsoft—not flashy, but reliable.
Performance Example:
From 1990 to 2023, high-quality U.S. stocks (based on profitability and financial strength) returned 11.5% annually, with lower volatility than the market.
Quality also tends to shine during downturns. In 2022, for instance, many quality ETFs outperformed the broader S&P 500 by several percentage points.
✅ Excellent for retirees who want smoother rides with fewer surprises.
🧘 Factor #5: Low Volatility – Slow and Steady
Low-volatility stocks may sound boring—but that’s the point. These are stable companies with minimal price swings. You won’t see them on the nightly news, but you’ll see them quietly delivering returns with fewer drops.
Performance Example:
According to S&P Dow Jones Indices, from 1991 to 2023, the S&P 500 Low Volatility Index returned 10.5% annually, compared to 10.3% for the S&P 500—with 30% less volatility.
That kind of consistency can be a huge comfort in retirement.
✅ Best for retirees who want income and growth—but hate market roller coasters.
🧠 Why Do These Factors Work?
These factors persist over time for a few key reasons:
- Behavioral Biases: Investors chase fads, panic in downturns, and overlook boring companies.
- Risk Premiums: Some factors (like small-cap and value) offer extra returns for taking on more perceived risk.
- Structural Limits: Big funds can’t easily load up on small or niche stocks, leaving opportunities for individual investors and smart ETFs.
The magic is in the discipline: sticking with a factor strategy through good times and bad.
🧺 How to Invest in Factors Easily
The good news? You don’t need to pick individual stocks or do any complex calculations. Factor investing is now available through low-cost ETFs from trusted providers like:
- iShares MSCI USA Min Vol Factor ETF (USMV) – low-volatility
- Vanguard Value ETF (VTV) – value factor
- Invesco S&P 500 Quality ETF (SPHQ) – quality factor
- iShares MSCI USA Momentum ETF (MTUM) – momentum factor
- iShares Russell 2000 ETF (IWM) – small-size exposure
You can even find multi-factor ETFs that blend several of these traits for one-click diversification.
❤️ Why Retirees Love Factor Investing
- Simplicity – You can buy and hold these ETFs with confidence.
- Consistency – Factors smooth out volatility and reduce the chance of underperformance.
- Proven Track Record – These are not gimmicks. They’re time-tested strategies that have worked across decades, countries, and market cycles.
🔚 Final Thoughts: Smart, Not Flashy
Factor investing won’t make you rich overnight. But it can help you stay rich—especially in retirement.
By focusing on strategies with real-world data behind them, you can take emotion and guesswork out of the equation. That means more peace of mind, more dependable income, and fewer sleepless nights worrying about the market.
In a world full of noise, factor investing is your steady compass.
Disclaimer: This blog post is for educational purposes only and does not constitute financial advice. Please consult with your financial advisor before making any investment decisions.