NOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. No rational person would make investment decisions based on a blog post. Please consult with your financial advisor before taking any action. If you wish to have specific advice for your situation please contact Polaris Financial Planning. Every quarter I take a look at how different segments of the investing world are doing. Below is the historical performance 6 US market segments. I divide the US market this evaluate performance and future opportunities.
Over long periods of time (10+ years) all segments tend to perform about the same so, unlike most advisors, I generally think of a hot sector as a contrarian indicator. That is to say, the better one of the segments has done and the longer it has exceeded the long term mean of the other sectors, the less desirous it is.
Data as of 12/31/11
| 12-Month Return | 3-Year Average | 5-Year Average | 10-Year Average | |
| Large Growth Average | -2.01 | 15.90 | 1.13 | 2.67 |
| Large Value Average | 0.01 | 12.49 | -1.53 | 3.70 |
| Mid-Cap Growth Average | -3.52 | 18.46 | 2.25 | 4.94 |
| Mid-Cap Value Average | -3.32 | 16.96 | 0.13 | 6.20 |
| Small Growth Average | -4.10 | 17.18 | 0.32 | 6.32 |
| Small Value Average | -3.51 | 18.65 | 1.55 | 4.83 |
2011 was a rough year for the market as a whole but, the last 3 years have been great. 3-year average returns range from 12.49% to 18.65% per year. Keep in mind, these numbers compound year after year. The Small value has an average of 18.65% per year but a total return is 67.05% for the 3 years and not just 3 x 18.65% (55.95%) as one might expect.
Over the 10 year time frame the differences between large cap and small / mid cap has grown. Very roughly, the 10 year average for large caps is just over 3% and the small / mid caps are around 5.5% per year. The difference is only 1.5% per year but when compounding is taken into account the 10 year total returns are around 35% for the large caps and 71% for the small / mid caps.
Now is the time for a subtle change in the allocation matrix for the portion of your funds invested in the US stock market. Over the past several years I have given a positive bias to the small and mid cap indexes and this allocation has proved to be very rewarding. I am now moving toward a more neutral market cap balance.
If you don't know how your assets are allocated, I would be happy to help you find the right balance. If you would like more information or specific advice on your portfolio please contact me.