RetireMentors features retirement advice from financial professionals, not staff journalists. Paul Merriman is committed to educating people of all ages to get the most from their retirement investments. Founder of Merriman Wealth Management, a Seattle-based investment advisory firm, he is the author of numerous books on investing: How to Select the Best and Get the Most from Your Financial Advisor " and " Investment Decisions Guaranteed to Change Your Financial Future.

He is president of The Merriman Financial Education Foundation and all profits from the sale of his books are used to advance financial literacy. His recommendations for portfolios of Vanguard funds, Fidelity funds and ETFs, podcasts, articles and books are available at paulmerriman.

Follow Paul on Twitter SavvyInvestorPM. Here's one of Wall Street's most poorly-kept secrets: Investors can make good money with the stocks of smaller companies whose names aren't necessarily household words. I didn't think so. Neither had I, until I looked at a list of the largest holdings in Vanguard's Small Cap Index Fund NAESX, I would never own those companies individually, but I'm perfectly comfortable holding them as part of a fund portfolio with thousands of stocks.

The Vanguard fund's top holdings also include some more familiar names: Like value stocks, small-cap stocks are an essential part of a well-diversified equity portfolio. Let's look at some of the data behind that assertion.

From throughU. However, on the way to that fine long-term performance, small-cap stocks gave investors a bumpier ride. Of the individual years, 59 produced gains averaging Statistically those are mighty good odds — at least if you are willing to lose nearly a third of your money in a month period.

A more realistic period for many investors perhaps for most investors, if you include retirement is 40 years. The data includes 48 such periods. The lowest year compound return was You might think those two periods would be made up of quite different years, but it's not so. The best period started in ; the worst started only six years earlier, in This is evidence that luck — the precise time when you first invest — can play a big role in your outcome.

Most investors evaluate performance over periods of less than 40 years, of course. So I obtained the numbers for all the year periods from through — there were 73 of how to trade micro cap stocks. On average, small-cap stocks returned But there were significant variations.

The best 15 years, starting inproduced a compound return of That sounds bad, I know.

Investing in Small and Micro Cap Stocks - The Daily Reckoning

But it means that, for most of a century, small-cap stock returns were positive in every year period. The average return of those nine periods was 6. It's not hard to understand why small companies can make good investments: They have lots of room to grow. Google was once a startup, as was Apple. The same is true for every corporate giant. Only a very few make it into the Google-Apple league, and it's impossible to know in advance which ones will make the grade.

But if you invest in hundreds of small-cap stocks, you will have a piece of the action when the next obscure idea suddenly explodes with success. In the next article in this series, I'll describe an even more interesting asset class: These, as you stock market correction deadline surmise are stocks of companies that are both small and webtrader forex4you with investors enough to qualify as value stocks.

Before I leave the topic of small-cap investing, I need to cover a little bit of fine print. Size does indeed matter here, and there are varying definitions of what is small-cap and what is midcap.

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The numbers I've used are from an index created by Dimensional Fund Advisors. That is considerably lower than some other measures of small-cap investing. Here's what that means: In years when smaller stocks are more wow gold making professions 5.2 than larger ones, the DFA index will most likely show higher returns than the Vanguard fund.

But in how to trade micro cap stocks when large cap beats small cap I would expect the Vanguard fund to do better than the smaller small-cap fund from DFA.

For more on small-cap oil price per barrel stock market, check out my podcast, 10 things you should know about small-cap funds. By using this site you agree to the Terms of ServicePrivacy Policyand Cookie Policy.

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