Do Not Forget About the Small Side Of Your Portfolio

Small cap stocks are more volatile in general than the overall markets. Due to this reason they experience greater booms and greater busts. Another important fact you should know is small caps outperform when coming out of recessions, so how much of your investment allocation was in small caps since mid last year? If none at all and you are a mid-long term investor then you really should start gaining exposure to small caps near these levels; and yes, even if you are a conservative investor. Adding more volatile asset classes to a portfolio does not necessarily increase the overall portfolio volatility(or risk), to an extent it can actually decrease the volatility because small caps are generally ahead of the curve.

Small caps have underperformed throughout November and early December, and since mid December began to outperform the broader markets. A good representation of this is the US small cap ETF (Symbol:IJT), which completed its continuation pattern on December 22. Current targets on the upside for IJT are $60, and then $63. On the downside a break below 57.15 should bring rise to $55, and below $55 there should be a test of $50 (a good buying point.

Looking at the global small cap ETF (SCZ) we can see that it is in a range. Upper boundary for this range is $37.85 and the lower boundary is $34.50. A breakout is imminent in this ETF and be prepared when it occurs. An upside breakout of this range should lead to a test of $40, and a downside breakout would have its first target at $33. However, with this ETF there is still a strong uptrend, and the momentum indicators are still slightly bullish suggestion at least another retest of the upper end of the range at $37.

Both if these ETFs suggest further gains for small cap stocks in general. Purchasing one of these ETFs is one way to gain exposure to small caps; however, there is a multitude of other ways. You could also purchase a small basket (about 5) of small cap stocks. Remember, just because these two ETFs suggest broad small cap market gains you still must perform, or have a financial advisor perform analysis and research on the selection of the individual stocks. Do not just randomly choose and think you are properly invested because you are diversified. Diversification is not the only factor to be considered, you must have an investment strategy and research applied to every investment decision.