Welcome back to The Edge. Today we go beyond basic allocation into strategies that most retail investors never consider.
These are not get-rich-quick tactics. They are systematic approaches that institutions have used for decades, now accessible to individual investors through modern tools and automation.
Strategy 1: Factor-Based Investing
Market-cap weighted indexes are not the only way to invest. Academic research has identified factors that historically outperform over long periods:
Value: Stocks trading below their intrinsic worth based on fundamentals
Size: Smaller companies that have historically outperformed large caps over time
Momentum: Stocks that have been rising tend to continue rising in the short term
Quality: Companies with strong profitability, low debt, and stable earnings
Low Volatility: Stocks that fluctuate less than the market have shown surprising outperformance
You can access these factors through specialized ETFs. The key is understanding that factor returns come and go. Value might underperform for years before surging. Momentum works until it does not. The systematic approach is diversifying across multiple factors rather than betting on one.
Implementation
Consider allocating 20-30% of your equity exposure to factor ETFs. Split this across value, small-cap, and quality factors. Rebalance annually. This is not about timing factors. It is about capturing the long-term premium they have historically provided.
Strategy 2: Covered Call Automation
If you hold individual stocks or ETFs, covered calls can generate additional income without selling your positions. You sell call options against shares you own, collecting premium in exchange for capping your upside.
This is not speculation. It is income generation with defined risk.
How It Works
You own 100 shares of a stock or ETF
You sell a call option with a strike price above current price
You collect the option premium immediately
If the stock stays below the strike, you keep the shares and the premium
If the stock rises above the strike, you sell at that price (still a profit) and keep the premium
Automation Approach
Build a tracking system that identifies when to write covered calls. Set rules: write calls when implied volatility is elevated, target strikes 5-10% out of the money, choose expirations 30-45 days out. Monitor positions for early assignment.
This is not passive investing. It requires attention. But automated tracking and alerts reduce the cognitive load significantly.
Strategy 3: AI-Powered Investment Research
AI can accelerate investment research without replacing your judgment. The key is using it for the right tasks.
What AI Does Well
Summarizing earnings calls and financial reports: Save hours reading transcripts. Get key points in minutes.
Comparing companies across metrics: Ask for side-by-side comparisons of fundamentals, competitive positioning, and valuation.
Explaining complex financial concepts: Get clear explanations of terms, strategies, and market dynamics.
Generating research questions: Ask what you should investigate before making a decision.
What AI Does Poorly
Predicting stock prices: Anyone claiming AI can reliably predict markets is selling something.
Providing real-time data: AI models have knowledge cutoffs. Always verify current prices and data.
Making decisions for you: AI is a research tool, not an advisor. The decision is always yours.
Tools like Perplexity Pro excel at sourced research. Use them to find and synthesize information, then apply your own judgment.
Putting It Together
Advanced strategies require more attention than basic index investing. That is the tradeoff. You are exchanging time for potential outperformance or income generation.
The systematic approach:
Core holdings on autopilot: 70-80% in automated, passive investments
Advanced strategies with attention: 20-30% for factor tilts, income generation, and active research
Tracking and review: Monthly check-ins on advanced positions, quarterly rebalancing
This is how institutions think. A stable core with satellite positions for added return potential. You can build the same structure.
Next Week Preview
Tuesday: The Year-End Financial Audit. A complete checklist for closing out 2024 and setting up 2025 for success.
Friday: Building Your 2025 Wealth Roadmap. Goal setting that actually works, with automation to keep you on track.
Build the advanced layer. Capture the edge. Compound systematically.
To your systematic wealth,
The Wealth Grid Team