A Wealth of Common Sense: Factor Investing With Dimensional Fund Advisors

Investors generally lump investment opportunities into either value or growth. Unfortunately, that approach remains far from comprehensive. A great growth stock can also have value elements, and vice versa.

When investors look at different factors that make up great companies, they can find a mix of value and growth. And the right factors can mean creating a portfolio that fares exceptionally well. Factor investing doesn’t quite fit any particular box, but it can mean big profits and great returns.

For instance, a systematic approach may include looking for companies that have great management. That can include both growth and value.

A great CEO at a slow-growth company like a railroad may look at increasing profitability and margins.

But a software CEO may look at new product opportunities for fast growth. Either way, the value that leadership adds is critical.

Investors can even use the concept of factor investing passively. This means finding funds that have a history of outperformance but also low turnover and a low cost.

Mixing several of these funds with a mix of growth and value can lead to a set-and-forget portfolio. Such a basket full of funds with the right factors could easily outperform the market.

While the market may always trade-off between growth and value, investors don’t have to. Mixing the best of both can lead to improved returns.

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