2

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?

  • 1
    By yield are you specifically referring to dividend yield, or are you just intending to ask about overall rate of return? – Chris W. Rea Jun 27 '16 at 0:06
  • 1
    Daniel Storm: I rephrased the question to look for an answer based on historical data, which is what was originally intended. – Markus Hallmann Jun 27 '16 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. – Markus Hallmann Jun 27 '16 at 7:48
1

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.

| improve this answer | |
  • 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? – Markus Hallmann Jun 27 '16 at 7:53

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.