Since we need to include bond and treasuries in the investment quiver, there must be a factor that encompasses these securities. Sure enough, the academic community identifies the returns among bonds is tied to the duration. Unless we see an inverted yield curve, long-term bonds return more than short term bonds. There is little magic to this “anomaly.” In fact it barely qualifies as a factor. To pass over Term would mean we don’t include these low risk assets into the portfolio and that would be a mistake.
Berkin and Swedroe devote a mere three pages to this factor. To fill the bond factor gap, we will include a few bond and treasury options in the Factor portfolio for times when equities are out of favor. Readers will see what ETFs are selected for inclusion and these will vary depending where the portfolio is housed. When possible we gravitate to commission free ETFs.