U.S. Small Company stocks had a banner year in 2016. However, the returns can be broken into 2 very distinct periods highlighting how quickly and unpredictably the stock market can move.
Prior to the U.S. Presidential Election U.S. Small Company stocks had a good but not outstanding performance for the year. The Russell 2000 Index, which measures small company stock performance, was up 6.16% through the end of October. In comparison, the Russell 1000 Index, which measures U.S. Large Company stock performance, was up 5.82% for the same period. Historically, small company stocks have averaged greater returns than large company stocks, but there are many periods when the opposite will be true.
Following the U.S. Presidential Election though U.S. Small Company stocks really soared. For the 30 days following the election U.S. Small Company stocks appreciated 16.1% compared to 5.9% for U.S. Large Companies, as measured by the Russell Indices. Some investors missed this bump in prices entirely, having decided to sell their stocks fearing a collapse in prices following the unexpected election of President Trump.
This short period of time highlights how stock market volatility can work to the investor’s advantage, but only if they remain invested. Stock prices are unpredictable, and can swing widely. While these swings in prices can instill fear in some, it is from this risk that stocks are able to produce historically greater rewards than most other asset classes.
Investing in stocks is not for everyone. However, if you decide it is for you this 30 day window illustrates the importance of staying invested no matter what you feel the future might hold. Missing out on just this short period of time could cost you substantially when you ultimately decide to cash in your investment portfolio.
Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indices. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.