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What is a factor and how did you choose the factors for the Smart Beta portfolio?

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. Smart Beta considers five of these factors: value, momentum, income, low market risk, low volatility.

For more details, see our Smart Beta White Paper.

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Wealthfront prepared this article for informational purposes and not as an offer, recommendation, or solicitation to buy or sell any security. Wealthfront and its affiliates may rely on information from various sources we believe to be reliable (including clients and other third parties), but cannot guarantee its accuracy or completeness. See our Full Disclosure for more important information.

Wealthfront and its affiliates do not provide tax advice and investors are encouraged to consult with their personal tax advisor. Financial advisory and planning services are only provided to investors who become clients by way of a written agreement. All investing involves risk, including the possible loss of money you invest. Past performance does not guarantee future performance.