Historically, small-capitalization stocks have outperformed large-cap stocks, according to Ibbotson Associates, Chicago, which tracks results back to 1926. In 1998, though, large-caps gained nearly 29% while small caps posted a loss in excess of 7%. Thus, many investors (including some who were relatively new to the stock market) deduced that you could get rich in large-caps, poor in small-caps.
They soon learned that investing isn’t that easy. Small-caps led in 1999, 30% to 21%. In 2000, small-caps led again, at least for mutual fund investors. No one knows which will set the pace later in 2001 so it makes sense to put some money into small as well as giant companies.
What’s more, you should rebalance periodically. For example, if large-company stocks excel for several years, they’ll appreciate and make up a larger portion of your portfolio. That’s the time to sell some pricey blue chips and move the money into neglected small-company stocks. By rebalancing, you wind up selling high and buying low, which is how to make money in the stock market.
