A factor is an attribute of a stock or security that explains the security’s performance (“value” and “momentum” are examples). The underlying research – recognized with two Nobel Prizes (1990, 2013) – demonstrated that a security’s return is determined by the set of risk factors that it is exposed to, rather than its standalone risk (as measured by its volatility).
Out of the hundreds of factors that have been considered in academic research, a small subset have been demonstrated to be robust across time, across geographies, and – in some instances – across asset classes. Advanced Indexing considers five of these factors: value, momentum, income, low market risk, low volatility.
For more details, see our Advanced Indexing White Paper.
Nothing in this blog should be construed as tax advice, a solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront Inc. clients pursuant to a written agreement, which investors are urged to read carefully, that is available at www.wealthfront.com. All securities involve risk and may result in some loss. For more information please visit www.wealthfront.com or see our Full Disclosure. While the data Wealthfront uses from third parties is believed to be reliable, Wealthfront does not guarantee the accuracy of the information.