Factor Investing: Is It The Right Strategy or You?

The European debt crisis that arose late last year and has continued since is putting the best-laid investing plans to the test. The reason? Correlation. 

Correlation refers to how securities or asset classes perform in relation to each other and/or the market. A 1.0 correlation indicates that two security types move in exactly the same direction. A -1.0 correlation indicates movement in exactly opposite directions. A zero correlation implies no relationship.

Last year, the correlation between the stocks in the S&P 500 index and the index itself went from as low as 0.4 in February to as high as 0.86 in October, according to Birinyi Associates.

That level of correlation can make the diversification you’ve worked so hard to create in your portfolio ineffective. Never fear, though. One option for addressing highly correlated markets like today’s is factor investing.

Factor investing replaces traditional asset allocation with a focus on specific attributes that researchers say drive returns. These factors can include familiar attributes, such as small-cap or dividend yield. They can also include more complex attributes, such as economic sensitivity and volatility.

To utilize factor investing, you would look at your current factor exposure. To simplify things, you may want to consider just a few factors - such as the three most researchers agree on, which are beta, size and style. Next, decide whether that’s appropriate. Finally, tilt your portfolio toward the factors you think will outperform.

Factor investing isn’t new. It originated in academia 20 years ago, and now is finding favor among institutional investors.

Want to Feel Good? Try Decluttering Your Life

Decluttering is in. A Google search on “decluttering your life” generated 1.16 million results in just a sixteenth of a second. Everyone from professional declutterers to Zen masters has something to say about it. Simply said, though, it boils down to this: Declutter, feel good, achieve more. Following are some tips to help you declutter:

• Many experts recommend you start small. A post at www.zenhabits.net recommends spending five minutes a day on decluttering. Before you know it, that junk drawer or hall closet will be a thing of beauty. 

• As you’re going through that junk drawer or closet, ask yourself if you’ve used items in the past six months. If not, get rid of them. 

• Delegate a box for the undecided - items you might want in the future. If you don’t open the box in three months, get rid of the contents.

• Everyone has things that don’t live anywhere. Consider the often-lost TV converter or recharger for your electronics. Make it a mission to find these things.

• How many knickknacks do you really need? Pick your favorites and take memory pictures of the rest. Then pass them on to charitable organizations.

• Buried under papers? One suggestion: Every paper that comes in the door lands in a single place. Sort through the pile every two days and discard or file every piece.

• Last but not least, learn to love the decluttered look. You’ll stay decluttered for life.

How to Get Yourself Unstuck

It doesn’t matter if you’re an artist, an inventor, or a shoe salesman. There are times when you’re stuck, unable to move forward with a big project or something on your to-do list.

Here are four ways to get going:

Just start. It sounds simple, doesn’t it? But you can’t get moving until you start to move. It doesn’t matter what you do; grab a pen, contribute a thought, start a conversation. The momentum will follow.

Get in touch. Sometimes, taking a deep breath and getting in touch with what you’re ultimately trying to accomplish can help you identify the one thing that might be getting in your way.

Ask for help. Sometimes you need to get out of your own way to see things clearly. Ask the people around you for some advice on what to do first. Allowing yourself to detach from your own thinking and consider someone else’s perspective may give you the shift you need.

Take a walk. Taking time away can open new ways of thinking. Go for a walk, outside if possible. Notice your surroundings, listen to nature, and recharge your brain.