Does size matter in the stock market?
Recent history suggests that bigger is better when it comes to investing in stocks, and really big is even better than that. Only a few years ago, the idea that a U.S. company could be valued anywhere near one trillion dollars seemed preposterous. Today, six companies are each worth more than that—multiples, even!
For all the attention now being paid to Wall Street’s trillion-dollar mega-caps, it’s accepted wisdom that smaller companies' stocks outperform those of larger companies over time.
So, which is it? Well, I can make the case either way, depending on the time frame. But for all the talk about small and large stocks, I believe mid-sized companies deserve investors’ attention.
Where to Invest Depends on When You Invest
Look, time periods matter. If we’re talking about the last decade, Goliath has demolished all comers. Mega Cap ETF (MGC) has gained 258%, while MidCap Index (VIMAX) has returned 155% and SmallCap Index (VSMAX) is up 144%. (Or, if you prefer to use 500 Index (VFIAX) as your measure of large stocks, it’s up 243% over the last decade.)
But that’s just one decade—or rather a specific 10-year period from July 2014 through July 2024. I call this point-in-time performance, and it’s not particularly valuable. I think it’s critical to utilize much more information to inform our view.
Before I walk you through the data, let’s not lose sight of the forest for the trees. So, let me emphasize: Time in the market is what matters most. As I’ll show you, if you picked large, mid or small stocks (or all of them) and stuck with them over the past 45 years, your money grew at a double-digit annual rate.
Don’t let all this talk about company size distract you from the first order of business: Harnessing the compounding power of the stock market.
One final note: I’m discussing the “size” topic today because I wrote about Vanguard’s small-cap funds a few weeks ago and will analyze our choices in the mid-cap space next week. So, the question of “Does size matter?” is on my mind.
Returns Over Time
Let’s talk returns first.
The chart below shows the annualized total returns for the broad Russell indexes from the end of 1978 through the end of July 2024—the longest common history I could find.