When does it make sense to invest in companies with specific characteristics instead of in a broad index like the S&P 500
? Academics have long analyzed the relationship between stock returns and factors such as value, growth and size. Their research has at times revealed promising results.
More recent research has shown that investing based on three factors — size, value and profitability — can dramatically improve outcomes for those saving for retirement, as well as those living in retirement. In fact, people who invest in those factors had more assets at retirement, a lower risk of depleting their savings, and larger bequests, according to a paper published by Mathieu Pellerin, a senior researcher and vice president at Dimensional Fund Advisors.Emphasis on premiums increases initial retirement assets In his research, Pellerin looked at a hypothetical investor who starts saving at age 25, retires at 65, and dies at 95. The investor uses a glide path that starts with 100% equities at 25, starts transitioning toward fixed income (5-year U.S. Treasurys) at 45, and reaches an equity landing point of 50% at 65.
Mathieu Pellerin, D …