Fall is here. Back-to-school mornings, kids’ sports in full swing, and the NFL season officially kicks off. I recently wrapped up my fantasy draft (along with a new NFL animal draft with the kids), which means this might be a little late for anyone still hunting sleepers, but it’s the perfect time to talk about factor investing.
How you draft a fantasy team says a lot about how you approach risk, reward, and diversification. Loading up on one position leaves you vulnerable. Chase only the big names, and you risk overpaying. Ignore the under-the-radar picks and you miss some potential hidden upside. That’s the same mindset investors fall into when they ignore diversification across factors.
What Is Factor Investing?
In investing, the “roster spots” are called factors, the characteristics that have historically driven stock returns. The most common five are:
- Value: Looking for underpriced opportunities.
- Quality: Targeting profitable, efficient companies.
- Momentum: Riding trends while they last.
- Small Size: Betting on up-and-comers with growth potential.
- Low Volatility: Relying on steady performers.
Just like a fantasy roster, a factor investing strategy isn’t about stacking only one type of player. The strength comes from building balance across the lineup.
Why Factors Rotate Like Players
In football, some players shine early in the season while others don’t hit their stride until later, and markets behave similarly. Different investment factors tend to take the lead at different points in the economic cycle. During early expansions, value and small size often outperform, while quality typically rises to the top in the later stages of a bull market. When downturns hit, low volatility has historically been the factor that holds up best, offering steadiness when other areas struggle.
No single factor outperforms forever. A smart factor investing strategy is about knowing the cycle and keeping the team balanced.
Drafting and Factor Investing
The parallels are easy to spot:
- A “value” pick is your overlooked breakout player.
- A “quality” pick is your go-to starter every week.
- A “momentum” pick is your boom-or-bust speedster.
- A “small size” pick is a rookie with upside.
- A “low volatility” pick is the veteran who won’t win the week—but won’t lose it either.
Factor investing works the same way: you blend styles to reduce vulnerabilities and create staying power. And when you think about the trade-offs, it’s the same balance we talk about in risk vs. reward.
Factor Investing and Finding Balance
Could you draft like a gambler, loading up on stars and hoping they all stay healthy? Sure. And maybe you win the league. But you also might end up in last place, wearing the league’s punishment T-shirt at a crowded bar.
Most of us would rather play the long game. Factor investing, like a good fantasy football draft, is about balance. Blend stars, sleepers, and steady contributors. In both football and investing, that’s how you stay competitive through the long season.
If you’d like to discuss factor investing or whether or not Drake Maye is going to be the guy we all want him to be, please book a call. As a family financial planner, my door is always open.
*This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk, including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
