Bogleheads® Live
Factor Investing with Wes Crill
Nov 22, 2023
Wes Crill, Senior Investment Director at Dimensional Fund Advisors, dives deep into the world of factor investing. He discusses the advantages of targeting small and value stocks to potentially boost returns. Crill emphasizes the importance of long-term strategies and historical performance in navigating market volatility. He also explores the dynamics of small versus large cap investing and the relevance of the classic 60-40 portfolio model for retirees. Additionally, he sheds light on international price-to-earnings ratios, advocating for global diversification.
34:12
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Quick takeaways
- Factor investing aims to achieve higher returns by focusing on characteristics like size and value, though it involves increased complexity and volatility management.
- Global diversification is essential for investors to capture risk premiums effectively, especially considering the potential biases towards U.S. equities over undervalued international opportunities.
Deep dives
Understanding Factor Investing
Factor investing aims to achieve higher returns than traditional market investments by focusing on specific characteristics of securities, such as size, value, and profitability. Unlike index fund investing, which seeks to replicate market benchmarks, factor investing involves strategically selecting and overweighting certain securities to potentially yield better investment returns. Historical data supports this strategy, showing significant average return premiums of 2% to 4% per year for small-cap and value stocks. However, capturing these premiums in real-world scenarios is complex and requires a thorough understanding of portfolio design, management, and trading.
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