Turbo Charge The Portfolio

While you are guaranteed to get everything the market has to give just by investing in VTI only, there is significant evidence that you can improve your returns over and above the market return by investing in two other categories.

Small Cap Value  

Small Cap Value stocks have significantly outperformed other investment categories since 1929. Look at the table below.

Small Cap value 1930 - 2009, highlighted

Small Cap Value outperformed the S&P500 nearly 5% on an annualized basis over an 83 year period. That is food for thought

Confirming Evidence

The table below shows that the Small Cap Value style has outperformed any other style over the 30 year period 1972 to 2002. This is well in line with the previous table but from a different source.

Small Cap Value has the best 30 year performance of all the other investment styles. That superior performance has continued from 2001 as is shown by the chart below.

Still More Evidence

The heavy red line represents iShare’s Small Cap Value fund (IJS), the green line represents the S&P500 performance over the same time period.

Conclusion

While “past performance is no guarantee of future returns”, Small Cap Value stocks have definitely outperformed the S&P500 (and VTI) over a significant time period (87 years). Is it likely to continue? Probably. Professional “experts” recognize the superiority of the Small Cap Value genre.

An investment of 25% of your portfolio in a Small Cap Value fund (IJS) would be appropriate for those who have 20 or more years of accumulation.

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