<THE HARRY JONES PORTFOLIO>
by Harry Jones
(May 20, 1999) -- It's been good to not have to write every single day because there isn't much to say about anything on a daily basis. Daily chatter is what leads to small talk.
Small Cap Index Funds
2.5% Does Matter
by Jeff Fischer (TMFJeff)
Stocks with lower market capitalizations (or "small caps") have underperformed the S&P 500 for the past two years as large companies have led the market higher. Over history, however, small companies have achieved annual returns that are 2.5% higher than those of large companies. That doesn't sound significant, but... IT IS!
If you return 13.5% annually for 30 years, your $10,000 investment becomes $446,555. If you return 11% annually -- as the S&P 500 has done since 1926 -- your $10,000 becomes only $228,922 in 30 years.
2.5% does matter. It matters by over double the final dollar amount in this example.
Despite recent underperformance, if history is any guide, small stocks are not down for the count. Much more likely, small caps will return to a performance level that tops larger, slower-growing companies. While it's true that large companies come to dominate and thus drive the stock market, investing in companies before they become large usually provides an investor increased long-term returns.
To take advantage of this fact, there are several small-cap index funds available to you: funds that mirror the Russell 2000 index, or the S&P Small Cap 600 index, or the Wilshire Small Cap index, to name a few. Fools might want to consider complementing a large cap index fund investment with a fund that tracks a small cap index, too. The Vanguard Small Cap Fund tracks the Russell 2000, for example. The Galaxy II Small Cap Fund tracks the S&P Small Cap 600.
|Recent Harry Jones Portfolio Headlines|
|08/26/99||Is it a Nifty 500? Part II|
|08/19/99||Is it a Nifty 500? Part I|
|08/12/99||Illuminating Index Funds, Part Two|
|08/05/99||Illuminating Index Funds|
|07/29/99||The Foolishness of Index Funds|
|Harry Jones Portfolio Archives »|
Day Month Year History HARRY -0.60% 0.63% 5.07% 5.07% S&P: -0.40% 0.27% 9.23% 9.23% NASDAQ: -1.36% -0.02% 15.94% 15.94% Rec'd # Security In At Now Change 1/4/99 16 S&P Depos 127.63 134.09 5.07% Rec'd # Security In At Value Change 1/4/99 16 S&P Depos 2042.00 2145.50 $103.50 CASH $0.00 TOTAL $2145.50 Yesterday Today Change S&P Depos 134.91 134.09 SPY - 13/16
</THE HARRY JONES PORTFOLIO>