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What type of low-cost stock index exchange-traded fund (ETF) would give the best long-term total return, based on historical stock market data? Would it be a narrow blue chip stock index or a broader stock market index or something entirely else?

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    By yield are you specifically referring to dividend yield, or are you just intending to ask about overall rate of return? Commented Jun 27, 2016 at 0:06
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    Daniel Storm: I rephrased the question to look for an answer based on historical data, which is what was originally intended.
    – Make Mark
    Commented Jun 27, 2016 at 7:46
  • Chris W. Rea: Thanks for asking about this. I changed "yield" to say "total return" to clarify that the intention is to maximize the combination of dividend and growth.
    – Make Mark
    Commented Jun 27, 2016 at 7:48

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Small cap and mid cap shares tend to outperform large cap shares in a bull market, but they tend to underperform large cap shares in a bear market.

Since the stock markets tend to go up in the long term, this suggests that a low cost small and mid cap index ETF should offer the best long term returns.

Having said that, we are currently in a mature bull market having experienced over seven years without encountering a bear market. If a bearish outlook is something you worry about, then perhaps a broad market index, which will be heavily weighted towards large cap shares, may be a better choice for you at this time, with an eye toward switching to small and mid cap indices during the next bear market.

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  • Would you happen to have any pointers to (preferably academic) sources to back up the claims about differences between small and large cap share performance in different markets?
    – Make Mark
    Commented Jun 27, 2016 at 7:53

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