Why Russell 2000 Stocks Outperform The World

Many of you who have long followed the financial markets are aware of why the conventional wisdom says that “stocks tend to return 10% per year on average.” This data point comes from the well-renowned Ibottson & Associates study that found large-cap American stocks delivered returns of 10% from 1926 through 2012.

Arguably, the results of this study buried the lead, as it also indicated that a basket of American small-cap stocks, now represented by the Russell 2000 Index, delivered returns of approximately 12.2% over the same time frame.

Over an entire lifetime, that extra percentage point or two makes a difference. The large-cap American stocks, which involves compounding at a 10% rate for 86 years, turns $10,000 into $52 million. The small-cap American stocks, under identical circumstances but compounding at a rate of 12.2%, produces an end result near $300 million. Obviously, the plan isn’t to wait 86 years Read the rest of this article!