Discover how leveraging specific market factors can lead to smarter investment decisions and potentially higher returns. Begin your journey into factor investing with our comprehensive guide, tailored for both beginners and seasoned investors, updated for 2024.

Factor investing is an investment approach that focuses on specific factors or characteristics believed to drive returns in financial markets. These factors can include attributes such as value, size, momentum, quality, volatility, and dividend yield.

Factor investing encompasses two primary types of factors that influence the returns of stocks, bonds, and other assets: macroeconomic factors and style factors. Macroeconomic factors pertain to broader risks across assets, while style factors focus on explaining returns and risks within assets.

Examples of common macroeconomic factors include inflation rates, GDP growth, and unemployment rates. On the other hand, microeconomic factors involve considerations such as a company’s creditworthiness, share liquidity, and stock price volatility. Style factors revolve around distinctions like growth versus value stocks, market capitalization, and industry sectors.