Factor return decomposition.

Factor investing calculator estimates expected returns using Fama- factor model: Expected Return = β × Market Return + Value Loading × Value Premium + Size Loading × Size Premium + Alpha. Captures returns beyond simple market exposure (beta) - small-cap and value stocks historically outperform with higher loadings.

Example: market return 7%, beta 1.0 (matches market), value loading 0.5, value premium 3%, size loading 0.3, size premium 2%. Expected return = 7% + (0.5 × 3%) + (0.3 × 2%) + 0% alpha = 9.1%. Tilting toward value and small-cap factors adds 2.1% expected annual return.

Major factors (Fama- 3-factor + momentum + quality + low-vol): (1) Market (beta), (2) Value (book-to-market), (3) Size (small-cap premium), (4) Momentum (winners keep winning), (5) Quality (high ROE), (6) Low Volatility (low-vol stocks beat high-vol). Smart beta ETFs offer factor exposure cheaply (0.10-0.30%). Five Factor Model now standard academic framework. Real factor premiums lower than historical (~1-3% vs 3-5% backtests).

Quick example

With market return of 7% and portfolio beta of 1 (plus value premium of 3% and value factor loading of 0.5), the result is 9.10%. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.

Which inputs matter most

You enter Market Return %, Portfolio Beta, Value Premium %, Value Factor Loading, and Size Premium %. The rate and the time horizon usually dominate — compounding means a small change in either reshapes the final figure more than a similar shift in contribution size. Test this by doubling one input at a time.

What's happening under the hood

Fama- three-factor model: market beta + value premium + size premium + alpha. The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.

Using this well

Treat the output as one point on a wider map. Run it three times — a pessimistic case, a central case, and a stretch case — and plan against the pessimistic one. That habit alone separates people who stick with an investment plan from those who bail at the first wobble.

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. Treat the number as one scenario, not a forecast.