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Welcome to Stay Wealthy podcast. I'm your host, Taylor Schulte, and today I'm kicking

off a two-part series on small-cap investing. In this series, I'll be addressing three big

questions. Number one, what exactly are small-cap value stocks? Number two, why have small-cap

value stocks had higher long-term returns than

most other major asset classes? And finally, number three, does the recent 20-year underperformance

of this asset class suggest that the strategy is dead and won't work in the future? I'm also sharing

critical differences between small cap value funds

investors can own and how to take action if you want to include this asset class in your

portfolio. To view the research and articles reference in today's episode, just head over to

you stay wealthy.com forward slash 225.

Small cap value stocks are known to contain more risk than large cap stocks. Investors

willing to take this extra risk, they do so with the expectation that they will achieve higher

returns. However, since 2004, the SMP 500, an index comprised of the 500 largest U.S. stocks, the SMP 500 has

outperformed small-cap value stocks by over 100%.

Two entire decades of underperformance.

Before we explore this asset class any further and dissect this recent 20-year time period,

let's quickly revisit the four primary drivers

of equity investing returns. Number one, the market. Number two, company size, number three,

relative price, and finally number four, profitability. The first driver, the market, is pretty

straightforward. In short, the stock market is riskier than the bond

market. For that reason, investors should expect higher returns from stocks than bonds. And that's

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