Diversifying with Market Caps

The U.S. stock market struggled in 2022, with the S&P 500 index ending the year down 19.4%.1 The S&P 500, which includes stocks of large U.S. companies, is generally considered representative of the U.S. stock market as a whole, and it is a good benchmark for broad market performance. But there are thousands of smaller companies, and many of those held onto their stock value better during the market conditions of 2022.

The S&P MidCap 400, which includes midsize companies, ended the year down 14.5%, while the S&P SmallCap 600, which includes smaller companies, was down 17.4%.2 Although these were losses, it was the first year since 2016 that midsize and small companies outperformed large companies (in this case, by having smaller losses). While large companies have registered the highest average annual returns over the last decade, midsize and small companies have been stronger over longer periods (see chart).

Extending Your Reach

As these trends demonstrate, companies of different sizes tend to perform differently in response to market conditions. This suggests that holding stocks in companies of varied sizes could help diversify the stock portion of your portfolio and allow you to pursue a broader range of growth opportunities. Diversification is a method to help manage risk; it does not guarantee a profit or protect against investment loss.

The most convenient and comprehensive way to diversify by size is through mutual funds or exchange-traded funds that track indexes based on market capitalization, calculated by multiplying the number of outstanding shares by the price per share. There is no standard classification system, but Standard & Poor’s indexes offer a helpful comparison and are used as benchmarks for many funds.3

S&P 500: $14.6 billion or more

S&P MidCap 400: $3.7 billion to $14.6 billion

S&P SmallCap 600: $850 million to $3.7 billion

Russell indexes are also commonly used to construct funds based on market capitalization. The Russell 1000 includes large and midsize companies, while the Russell 2000 is a comprehensive small-cap index. Actively managed funds focusing on market capitalization typically include stocks chosen by the fund manager rather than following an index.

Stability, Growth, and Volatility

Stocks of larger companies, or large caps, are generally considered more stable than the stocks of smaller companies, because their size can help them weather rough economic times — as demonstrated by their strong performance during the pandemic. Large caps may provide solid long-term returns, but they typically have lower growth potential, because they have already experienced substantial growth. Many large U.S. companies have heavy overseas exposure, which makes them more sensitive to global economic forces — one reason they struggled in 2022.

Performance in Three Sizes

Even with poor performance in 2022, large-cap stocks have provided the highest returns over the last decade. However, mid caps were the leader over the last 20- and 30-year periods, with small caps not far behind.

Average annual return: Large-cap stocks 10 years 12.56%, 20 years 9.80%, 30 years 9.65%; Mid-cap stocks 10 years 10.78%, 20 years 10.66%, 30 years 11.09%; Small-cap stocks 10 years 10.82%, 20 years 10.64%, 30 years 10.33%

Source: Refinitiv, 2023, for the period 12/31/2012 to 12/31/2022. Large-cap stocks are represented by the S&P 500 Composite Total Return Index, mid-cap stocks by the S&P 400 MidCap Total Return Index, and small-cap stocks by the S&P 600 SmallCap Total Return Index. Expenses, fees, charges, and taxes are not considered and would reduce the performance shown if they were included. The performance of an unmanaged index is not indicative of the performance of any particular investment. Individuals cannot invest directly in an index. Rates of return will vary over time, particularly for long-term investments. Actual results will vary.

Mid caps may have greater growth potential than large caps, and midsize companies might react more nimbly to changes in the business environment. Mid caps are associated with higher risk and volatility than large caps, but are considered more stable than small caps.

Small-cap stocks might offer the highest growth potential of the three classifications, because they have the furthest to grow and are more likely to react quickly to market opportunities. However, they are typically the most risky and volatile class of stocks.

The investment return and principal value of stocks, mutual funds, and ETFs fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost.

Mutual funds and ETFs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. You should read the prospectus carefully before investing.

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Matthew Englade

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Angela Englade

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Matthew Englade

Matt graduated in 2008 from Southeastern Louisiana with a bachelor's degree in business. He started his career in financial services, working as a staff member with Delahaye and Associates, where he eventually became a partner.

In 2022 he formed Englade Insurance and Financial Services, where his primary focus is serving his client’s best interest. “But even if you should suffer for what is right, you are blessed.” 1 Peter 3:14

Matt is a resident of Central, LA and enjoys spending time with his wife, Angela, and three children. He also enjoys coaching middle school basketball and giving back to his local church.

Jacob Ashford

Jacob is currently a student at Southeastern Louisiana University and is studying in the College of Business as a Marketing Major.

Jacob pursues his career by working with Matt and Angela in their mission to spread financial sustainability with their current and future clients. He also donates his time to the Southeastern's College of Business by participating in numerous career services for the city of Hammond.

Having two younger sisters, Jacob understands the importance of protecting family values and leading a path to a secure future.

Nathan graduated from Texas A&M University Class of 2006 with a degree in Agriculture Leadership & Development. Nathan has been in public service as a firefighter since 2008. In addition he and Katherine have started, operated, purchased, and sold multiple small business’. Through his experiences; Financial Services has been a lifelong pursuit for Nathan and he is excited to be a resource for people like you, your family, and your business.

Angela Englade

Angela graduated from Southeastern Louisiana University with a Bachelor of Science degree in Nursing. She worked as a Labor and Delivery nurse for 14 years. She decided to continue her love for caring for others through helping people obtain financial health and wellness.

She joined Englade Insurance and Financial Services to guide Matt's clients on becoming aware of potential roadblocks and achieve financial peace of mind. In her free time, she enjoys spending time with her family and exercising.

Along with Matthew, she volunteers many hours to local charities to give back to the community.

Eve is happily married to her best friend Rick since 2012. They enjoy recreational trips like hiking and camping, visiting the beaches in the Gulf of Mexico, and trips to Walt Disney World. They are active in their congregation, donating their time and effort to help run the Audio/Visual presentations for services. She is grateful for all God has given her and believes all the glory goes to Him.

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Matt is a board member of CALEF and is involved committed to its long-term success. The mission of CALEF is to provide police, fire and EMS personnel with the safety equipment they need to serve and protect with excellence. We provide all-day rifle protection and other safety equipment to local law enforcement, fire and EMS personnel. CALEF believes that communities are safer and stronger when local law enforcement, fire and EMS personnel are properly equipped to do their job.

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Matt and Angela are active members of the church and school communities of St. Alphonsus Liguori Catholic Parish. Their mission is to form students in the Catholic Faith spiritually, academically, physically, and culturally in an environment of academic excellence. St. Alphonsus Liguori Catholic School is committed to providing a positive, faith-filled environment for children to learn. Our comprehensive curriculum is designed to promote academic excellence and the spiritual growth of our students, coupled with an appreciation of how service to others makes the world a better place. We strive to expand their potential to become leaders.

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