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Are small-cap stocks worth it?

Updated: May 1

If you've read some of my previous blogs or watched videos you'll know that I'm a big proponent of having small cap company stocks in your portfolio. (A small cap company is one with a market cap of less than $2 billion and more than $250 still huge companies, but not nearly as large as those in the S&P 500.)

So far in 2024 the S&P 500 has returned just over 6%, as of the day I'm writing this. The Russell 2000 has had a small negative return - down about 0.8% so far.

This leads to a logical question: large cap companies have dominated market return in recent years, why buy small cap stocks at all?

Dimensional Fund Advisors just put out some research on this that is worth sharing:

Since 1927 to the end of 2023, Small cap stocks outperformed large cap stocks in almost 70% of 10 year periods.

You can see that in shorter time periods it's not as prevalent. Especially in one year measurements - it's pretty much a tossup. But over the long run, history is on your side by tilting a some of your portfolio to small cap stocks.

Dimensional also targets premiums of Value stocks over Growth stocks and High Profit companies over Low Profit companies, but those are topics for another blog!

Often the best thing we can do as investors is to stay the course, and with recent small cap performance this is one of those times. I take it a step further - I'll be buying!

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