In 1976, Roger Ibbotson, then a professor at the University of Chicago, published his influential study analyzing the long-term returns of the principal asset classes in the U.S. economy. This study, known as Stocks, Bonds, Bills, and Inflation ® (SBBI) ®), provided historical returns dating back to 1926. The 2011 yearbook demonstrates that a $1 investment made in 1926 would be worth $16,054 in small company stocks, $2,982 in large company stocks, $92.94 in government bonds, $20.55 in treasury bills, and $12.22 in inflation at year-end 2010. This hypothetical value of $1 invested at year-end 1925 assumes reinvestment of income and no transaction costs or taxes. Where do you want to invest your next dollar?

As a small investor, you can take advantage of opportunities that a giant mutual fund cannot. For example, you can put a portion of your stock assets in small capitalized companies. Most mutual funds cannot place a significant portion of their assets in small companies because the total market value of small companies is less than the size of some mutual funds! Furthermore, if they tried to place a significant investment in small companies, they would perturb the market so much that they would get a poor price. In fact, the “small company effect”, the increased return from small companies, is at least partly due to the fact that as soon as a small company reaches a certain size, it becomes possible for institutions to own their stock, and therefore their price goes up due to increased demand.

Small capitalization stocks are small, relatively young companies with outstanding growth potential but no assurance of success. Many small growth companies are in new industries such as genomics, biopharmaceuticals, technology, and healthcare. Sometimes known as aggressive growth or emerging market stocks, they seldom pay a dividend because these companies typically put their earnings back into their business. Although small cap stocks are considered the riskiest of all stock investments, we believe there should be a place in your portfolio for these companies. Use our twenty five years of experience to help guide you in your portfolio selections. IHM Financial uses a proprietary small cap strategy when investing your capital.

Investing in stocks and mutual funds involves risks, including loss of principal.  Past performance is not a guarantee of future results.