We kicked off this three-part series with a commentary about anchoring your portfolio to large-cap stocks, and Mr. Market has provided ample evidence lately as to why that's a smart move. During a period of stomach-churning performance gyrations, the big boys have done a better job of preserving their investors' capital relative to the little guys. Large caps as a group have been less volatile over the long haul, with the S&P 500 putting up better standard deviation figures over the past 10 years than the Russell 2000 or the S&P MidCap 400 benchmarks.
The lion's roar
That makes the market's titans worthy of the lion's share of your nest egg, but that's not to say you shouldn't have exposure to the little guys, too. Far from it. Going that route, after all, could mean missing out on the kind of eye-popping gains that mid-caps such as Ultra Petroleum (AMEX:UPL), MEMC Electronic Materials (NYSE:WFR), and Boyd Gaming (NYSE:BYD) have put up over the past five years.
Small caps have been on a lengthy tear too, of course, with the likes of Nuance Communications (NASDAQ:NUAN), and Novastar Financial (NYSE:NFI) making big bucks for investors willing to put up with some bumps along the path to market-shellacking success.
You're welcome
Thanks (yes, thanks) to the market's recent choppiness, some of those companies are currently trading at steep discounts relative to their respective 52-week highs. And that's good news -- at least if you're an investing cheapskate like me. Still, before adding any of 'em to your further research list, decide just how much of your portfolio you want to allocate to the market's various cap ranges.
A diversified and carefully calibrated portfolio, after all, can help take some of the sting out of market volatility.
The Foolish bottom line
"Careful calibration" is in the eye of shareholder, of course, and in past installments of our Motley Fool Green Light service, we've offered members guidance on how to take stock of their current portfolios (which may consist solely of 401(k)s or IRA accounts) before making their next investments. That's precisely why intelligent asset allocation is such a vital topic, and it's why we've covered it. We want to help you get your personal finance house in order. In addition to the newsletter, the service comes with a website chock-full of practical financial advice, not to mention our members-only discussion boards.
Next up -- and last -- in our series, we tackle investing in foreign companies.
This article has been updated by Foolish research associate Katrina Chan and was originally published on July 14, 2006, by Shannon Zimmerman. Katrina does not own shares in any of the companies mentioned.
Nuance Communications is a Motley Fool Hidden Gems recommendation. The Fool has a strict disclosure policy.
