The Russell 2000 is probably the most widely-followed index of small-company ("small-cap") U.S. stocks. An analyst at Russell Investments reviewed the four U.S. recessions since 1979. Her conclusion: the best time to invest in U.S. equities has been far in advance of the end of a recession.
Moreover, small-cap stocks have outperformed large-caps prior to the time when the economy turns around, and small-caps tend to move up quickly as the economic environment improves. On average, small-cap stocks have led large-caps at twelve, nine, six and three months prior to and after a recession’s bottom. Investors who bought small caps three and six months prior to the bottom did well, as did those who managed to buy exactly at the bottom of the economic cycle.
Currently, there is no knowing when this recession will end and the economy will pick up. However, this recession officially began in December 2007 so it’s already over one year old. If you think the bottom will occur in 2009 and history is likely to repeat itself, this may be a good time to add small-cap stocks or funds to your portfolio.
