Most investors buy into the well-accepted idea that asset allocation is a key factor in their portfolio's long-term success. That means buying stocks of all shapes and sizes from many different areas of the globe. But there is one area that many investors pass over when constructing their portfolio -- the very area that has been responsible for some of the greatest gains over the past several decades.

Taking the middle ground
The majority of investors take care to get exposure to the staying power of large-cap stocks while also loading up on the high-growth potential of smaller companies. But what many folks are missing out on is that fertile ground in between -- mid-cap names. And that omission could be costing them.

According to research firm RidgeWorth Investments, mid-cap stocks have handily beaten both small-cap and large-cap stocks over multiple rolling time periods.

Percentage of times Russell Mid-Cap Index outperforms (1979-2009):

Time Period

Russell Mid-Cap
Beats Russell 2000 (Small Caps)

Russell Mid-Cap
Beats Russell 1000 (Large Caps)

Rolling 1-year periods

66.5%

57.3%

Rolling 5-year periods

87.9%

62.9%

Rolling 10-year periods

100.0%

63.6%

Source: RidgeWorth Investments, from Russell data.

According to this data, mid caps have beaten small caps in every single one of the rolling 10-year periods in the past 30 years! That's a pretty impressive feat. Likewise, over the past 15 years, the Russell Mid-Cap Index has posted an annualized 9.9% gain, compared with 7.7% for the Russell 1000 Index and 7.6% for the smaller Russell 2000.

There are no hard-and-fast rules about what constitutes a mid-cap stock, but a good rule of thumb is that any stock with a market capitalization between $2 billion and $10 billion can be safely classified as mid-cap. Apparently, mid-sized names combine the best of both worlds -- the stability of larger companies and the rapid growth of small-fry names.

Quick and fast exposure
If you don't have a specific mid-cap allocation in your portfolio, don't panic. That doesn't mean you've missed out on all of these fabulous gains over the past few decades. Many small-cap and large-cap funds own at least a small percentage of mid-sized companies. So you haven't completely missed the boat, but you also haven't gotten anywhere near the earning power that dedicated mid-cap exposure would have gotten you. So if you're lacking in this area, start building up now.

One super-cheap and relatively easy way to get instant diversified mid-cap exposure is through an exchange-traded fund that focuses on this segment of the market. Consider checking out some of the following ETFs:

ETF

Expense Ratio

Companies Invested in

Vanguard Mid-Cap ETF (VO)

0.15%

Discover Financial (NYSE: DFS), Delta Air Lines

iShares S&P 400 Mid-Cap Index (IJH)

0.21%

Cree, Joy Global (Nasdaq: JOYG)

SPDR S&P 400 Mid-Cap (NYSE: MDY)

0.25%

Dollar Tree Stores (Nasdaq: DLTR)

If you're a more aggressive investor, you might want to target 15%-20% of your portfolio in this mid-sized sector. Moderate types that are getting close to retirement should target around 10%-15%, and more conservative investors and those in retirement should still aim for 7%-10% in the mid-cap realm.

Actively searching
Of course, if you're looking to capitalize on the stock-picking powers of those who scour the middle of the market for a living, there are several excellent actively managed mid-cap funds that can either serve as an anchor in your portfolio, or supplement your passive ETF exposure. For example, American Century Mid-Cap Value (ACMVX) is run by three managers who look for attractively valued mid-sized fare like communications company CenturyTel (NYSE: CTL), along with a smattering of larger names like Waste Management (NYSE: WM) and Lowe's (NYSE: LOW). Although the fund has only been around since early 2004, it's managed to rack up a pretty decent track record, beating 90% of all mid-value funds over the past five years.

Now, I would be remiss not to point out that just because mid-cap stocks have done so well in the past, that doesn't mean they will do just as well in the future. Mid-cap stocks and the funds that love them should play an important part in your portfolio, even if their returns over the next decade or two are nowhere near as stellar as they were in decades past. Mid-cap stocks may not always lead the pack, but they offer a tremendous opportunity to help boost your portfolio returns in what is likely to be a challenging market environment ahead of us.

For more insider investing and personal financial planning tips, check out the Fool's Rule Your Retirement service, which provides top-notch retirement and mutual fund advice. You can start your free 30-day trial today.

Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. Discover Financial, Lowe's, and Waste Management are Motley Fool Inside Value choices. Waste Management is a Motley Fool Income Investor selection. The Fool has a disclosure policy.