Large-caps may be strong right now, but investors in for the long haul should consider staying small, according to a study from the
Although the Russell 2000 index, the go-to-gauge for the small-cap sector, suffered losses in May, not everyone is convinced the downturn is the start of a more pronounced plummet. The Schwab study sees 10.3% returns for small caps, compared to 8.6% for large-caps over the course of two decades. The study also projects 8.6% returns for international stocks and a 4.4% return on bonds over the same span.
The late 1990s conditioned investors to expect double-digit returns, according to Schwab's vice president of mutual fund research, James Peterson. With the end of the Internet frenzy, those investors suddenly saw the values of their holdings sink. "Markets that fluctuate to that extent make it hard for investors to plan for their financial futures," he said.
The long-term outlook for large-caps and bonds until 2026 are lower than the 11.1% and 8.6% returns they delivered, respectively, between 1970 and 2005. That's because Schwab predicts a decline in both long-range inflation and interest rates.
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