The results produced over the years by small-company stocks are eye-opening. From 1926 through 2013, the annualized return for stocks in this category has been 12.3%, versus 10.1% for large-company stocks, according to data compiled by Ibbotson Associates, a Morningstar subsidiary.
While that advantage may seem modest, Ibbotson’s 2014 yearbook reports that $1 invested in small-company stocks would have grown to $26,641 in that period while $1 in the blue chips would have reached $4,677. (That hypothetical buildup assumes continual dividend reinvestment and no taxes; transaction costs are inferred for small-company stocks starting in 1981.)
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