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Winning Ways With Mid Caps

When you examine the long-term performance of mid-cap stocks, you discover that they often fair better than small caps and large caps during Wall Street’s inevitable hot and cold periods. Mid-sized companies tend to be more resilient than the small fry during recessionary times, and they can also act more nimbly than their bigger peers.

Since mid caps became their own investment category in 1981 they have generated annualized returns of 12.4%, on average. In contrast, the Standard & Poor’s 500 stock index, which is a benchmark for big corporations, generated annualized returns of 10.1% during the same 27-year period ending in 2008, while the Russell 2000 index of small caps earned a yearly 8.8%.

An excellent way to invest in mid caps is through exchange-traded funds (ETFs), because they provide investors a broad swath of companies. I prefer mid-cap value ETFs because historically value stocks, regardless of their size, have performed better than their growth peers. Use either of the following ETFs…

iShares S&P MidCap 400 Value Index (IJJ). Recent share price: $48.40. Yield: 3.1%.

iShares Russell MidCap Value Index (IWS). Recent share price: $26.89. Yield: 3.1%.

Source: Wayne Farlow, CFP, principal, Financial Abundance, LLC, a fee-only investment advisory firm in Boulder, Colorado. The firm’s model ETF portfolio from 2002 through 2008 generated annualized returns of 5% versus a negative 1.9% for the S&P 500 over the same seven-year period.
Date: February 4, 2009 Publication: Bottom Line Personal
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