If you own a small-cap stock fund in your retirement portfolio you may be wondering if it’s time to throw in the towel. Small-cap stocks, which these days means stocks with a capitalization or market value of less than about $10 billion, are on track for yet another dismal year. The Russell 2000 index
the most widely followed index of small stocks, has earned barely 1% so far in 2023. The S&P 500 index
of large-cap stocks: 9%.
This is nothing new. The Russell 2000 has done worse than the S&P 500 over the last one year, three years, five years, and 10 years. It fell more than the S&P 500 in 2022—by 20% compared with 18%. But it has risen by less during the boom years. Less upside, more downside. What’s to like? If you’d invested $10,000 10 years ago in a low-cost index fund that tracks the Russell 2000, such as the widely owned iShares Russell 2000 ETF
fund data company Morningstar says you’d be up to about $19,900, including reinvested dividends (and ignoring taxes). You would have (almost) doubled your money. The same investment in a low-cost S&P 500 large cap ETF, such as the State Street SPDR S&P 500 Trust
? You’d have $29,600. You’d have nearly tripled your stake—or, to put it another way, you’d have made twice the return. If that’s not bad enough, consider this. Doug Ramsey, chief investment officer at Leuthold Group in Minneapolis, provides us with the chart at the top of this article. It shows the comparative returns of the Russell 2000 versus the S&P 500 going back more than 40 years, to when Jimmy Carter was president. And small-caps have pretty much sucked. Since the early 1980s they have, overall, been a much worse investment than large-company stocks, although there have been periods when they have done well. Many fund managers still talk about the “small cap effect,” the idea that “small-caps outperform large-caps over time.” But that was an idea popul …
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