Many listeners of the show (myself included) are total market index investors, where we just buy ETFs that are meant to represent the entire market as a whole, worldwide (as opposed to stock picking, or trying to speculate what will go up or down and investing based on that).

After you’ve been index investing for a while though, it’s easy to begin to wonder whether you should customize your portfolio a bit further so that it’s more aligned with your particular situation, or so that it holds more of the types of companies that you want in your portfolio.

When you start looking into this, you’ll quickly come across what is known as factor investing, which can be used to tweak your portfolio so that it holds more companies that contain specific attributes that you like.

In this interview, we talk about the benefits of doing this so that you can better decide for yourself whether it’s worth the added complexity in your portfolio.

We also discuss the risks that you need to be aware of if you partake in modifying your investment portfolio in this way, and we cover how you can analyze factor ETFs to find out which (if any) are the right fit for you.

Of course, we also cover some of the different types of factor ETFs out there and what they mean, so that you can better decide about potentially incorporating them into your portfolio.

Questions:

1. A lot of the listeners of the show are total market index investors, where we just buy the market as a whole using the same core ETFs. What is the advantage of now also adding factor ETFs into our portfolio?

2. What are the risks of incorporating factor ETFs into our portfolio vs just sticking with a total market indexing strategy?

3. There are a lot of factor ETFs out there. How do we begin to analyze them as a DIY investors to find out which (if any) are the right fit for us? Are there any educational resources you can recommend?

4. Would you consider factor investing to be “active” investing?

5. When I spoke with your team in the past, it was mentioned that BMO believes that it is most optimum to have both passive and active investments within our portfolio. Interestingly, when I interviewed Vanguard in the past, they also had the same viewpoint (I wonder if that’s a common viewpoint among all the major ETF providers).
   
   Can you share why you think our investment portfolio should have an active component as opposed to just being 100% passive through total market index ETFs?

6. When factor ETFs get launched, they don’t have a long history where we can, for example, stress test them by seeing how they performed during the 2008 financial crisis or the tech crash in the 2000s.
   
   If we want to see/simulate how that ETF would have performed in adverse market conditions, how would we go about doing that?
   
   I suppose we can use this approach for most new ETFs that get launched and that we want to evaluate?

7. How is using factor ETFs different from just using active ETFs or mutual funds?

8. Would it be fair to say that we can start with a broad, total market ETF approach, but then we can use factors to fine tune our portfolio for our specific needs?
   
   (i.e. To either increase potential returns at the cost of risk/volatility, or to reduce volatility/risk at the expense of lower expected returns?).
   
   Are there things that we should consider other than just looking at returns and volatility?

9. In one of the BMO white papers I read, it was mentioned how one strategy is to go into and out of factors depending on the economic climate. For example, if we’re seeing slowing vs rising growth, or increasing vs decreasing inflation. However, most listeners of the show (myself included), I think prefer the set-it-and-forget-it approach where we don’t have to follow the economy, the different economic markers, or the markets.
   
   Instead, we would rather just have the same ETFs to buy every month with a piece of every paycheque, and just hold those ETFs long term until retirement.
   
   For those types of investors, should they just do total market index investing or can factors still be a smart tool to use, without having to analyze what economic climate we are in?

10. Can we go through each of the different factor types and explain what they are?

11. Where can we learn more about factor investing, and where can we get some of your free tools, white papers, and other resources?

Resources:

Free ETF Tools and Resources

ETF Market Insights (Free resources, webinars, and Q&A)

Factor Based Investing ETF White Paper

BMO ETF Lookup, News and Resources: BMOetfs.com

ETF Comparison Tool (for both: Non-BMO and BMO ETFs)

He has been investing in the stock market for 32 years, having built a million-dollar portfolio on a schoolteacher's salary when he was in his late 30s. 

Over the past 16 years, he has given hundreds of talks in over 30 different countries espousing research on financial wellness, sound investing and life satisfaction.

We cover a lot of areas in this interview, but since Andrew achieved financial independence in his 30s, I especially wanted to ask him how we Canadians can live off our portfolios long term, without depleting it prematurely (while also maximizing the income that we are able to withdraw). 

We discuss what to do when it comes to our withdrawal strategy in different economic environments, and we discuss how one can best use the 4% rule, and how we can modify it, depending on what happens in the markets. 

We also talk about one of my favourite topics, variable withdrawal strategies which help us maximize how much income we can take out of our portfolio every year (while not running out of money).

Questions:

1. For anybody that hasn’t read your books or is hearing about you for the first time, can you tell us a bit about yourself, especially when it comes to the world of investing, financial planning, and retirement?
   
   
2. You're someone that has achieved financial independence many years ago and has had to learn how to live off your portfolio indefinitely in a sustainable fashion.
   
   Just to set the groundwork and for somebody that hasn't read your books before, can you tell us what kind of investments your portfolio consists of that has allowed you to do this and retire early?
   
   
3. Do you have a system or process that you follow to determine how much money you can take out from your portfolio to live off of every year? (with the implied goal that you’re trying to maximize how much you can take out annually, while still having that amount be sustainable so that you don’t run out of money in the future).
   
   
4. There are many withdrawal strategies that one can use to live off their portfolio. Apart from the one that you just mentioned that you do yourself, are there any other ones that you like or have found to work well for others?
   
   
5. What are your thoughts on variable percentage withdrawal approaches? Ex. Taking out 4% of whatever the portfolio value is at the time, instead of more static approaches like the traditional “4% rule”.
   
   
6. Before we get into more questions can you tell us more about your new book called Balance and where can we get it.
   
   
7. When we spoke before the interview, you mentioned that sometimes when pursuing money and financial independence, we can actually fall into a trap and miss the point of why we pursue it in the first place. And in relation to that, in your book, you talk about how we need to be careful about how we define success, and how we need to strive for the goal of life satisfaction as opposed to just a high monetary figure within our portfolio. Can you speak to that bit?