This time of year is filled with “the best of” lists: movies, books, restaurants, electronics, toys, etc.The best investment lesson of 2022 applies to virtually all investors: You should have at least some percentage of your portfolio in a fund that owns small-cap value stocks.
The “value” in small-cap value means you’re buying these stocks at a discount price, based on their profits and measured by the price-to-earnings ratio. That’s a smart way to invest. The numbers are based on calendar years 1970 through 2021, a relatively long period that included all sorts of ups and downs in the economy and the market.
I’ve used the S&P 500 as the base portfolio, mostly because it’s well-known and easy to understand — and I believe most investors’ equity portfolios at least roughly replicate that index of large U.S. stocks. You and a friend each invest $500 a month into a retirement account for 35 years. Your friend’s money is 100% in the S&P 500; your investments are allocated 80% into the S&P 500 and 20% into small-cap value.