Below are CAGRs (Compounded Annualized Growth Rates) of US equity styles from the ending of the gold standard to today.

It’s important to look at CAGR because it accounts for “investing math”.

CAGR answers the question, “If I put money in at the start and don’t touch it, what steady interest rate would have gotten me to today’s balance?”

“Note: Performance data prior to 1992 represents theoretical academic research (Fama-French Data Library) rather than investable mutual funds. Actual investors during this period would have relied on active managers (like the Vanguard Windsor Fund) who faced transaction costs and fees not reflected in this theoretical data.”

Note on Data Sources: The Micro Cap performance shown prior to 1981 represents theoretical academic data (CRSP Decile 10) rather than an investable fund. Returns during this era do not reflect the significant trading costs and liquidity issues regular investors would have faced at the time. From 1981 onward, the data reflects the actual net-of-fee performance of the DFA US Micro Cap Portfolio (DFSCX), the first fund to make this asset class investable.

What are US Equity Styles?

US equity styles are a classification system used by investors to group stocks based on size (large, mid, small, micro) and style (growth, value).

They can be used to diversify your portfolio and make sure you’re not too over or underexposed in one area of the market.

Let’s breakdown each style.

• US Market
  • Contains all investable publicly traded companies in the US. It’s weighted my market capitalization and contains large, mid, and small cap companies.
• Large Caps
  • These are the largest companies in the US. They have market caps of at least $10 billion. They represent the top 70% – 80% of the US market.
• Large Cap Value
  • Huge, slow growing companies that usually pay dividends.
• Large Cap Growth
  • Companies that dominate their sectors and have high revenue growth.
• Mid Caps
  • These companies have market caps of $2 – $10 billion. They might be well known brands that don’t have a global influence yet.
• Mid Cap Value
  • Established mid sized companies in established industries.
• Mid Cap Growth
  • Disruptors expanding their market share rapidly.
• Small Caps
  • Small, young, or niche companies. They have market caps of $250 million to $2 billion.
• Small Cap Value
  • Small companies undervalued by the market.
• Small Cap Growth
  • Young, agressive companies reinvesting everything to scale.
• Micro Caps
  • The smallest tier of investable companies. Their market caps are less than $250 million.

Historical CAGR by US Equity Style (Post-Gold Standard)

Performance Review: Small Cap Value Leads the Way

Small Cap Value had the highest CAGR at 13.41%. This performance is why a lot of professionals still recommend investing in this equity style. Historically, it has outperformed the US market.

Small Cap Growth had the lowest CAGR at 9.77%.

Which Equity Styles Outperformed the US Market?

From the ending of the gold standard to the present, the US Market had CAGR of 10.89%.

Here are the US equity styles that outperformed the US Market:

• Small Cap Value: 2.52%
• Mid Cap Value: 1.63%
• Micro Cap: 1.27%
• Mid Cap: .90%
• Small Cap: .54%
• Large Cap Value: .34%
• Large Cap Growth: .28%
• Large Cap: .02%

Small and Mid Caps have historically outperformed Large Caps, which might be surprising because Large Caps dominate so much of the news headlines today.

Which Equity Styles Underperformed?

Not every US equity style outperformed the US Market.

Here are the underperformers:

• Mid Cap Growth: -.40%
• Small Cap Growth: -1.12%

The Power of Compounding: Why Small Percentages Matter

It’s important to view these percentages as interest rates.

While an outperformance of .54% might not seem like a lot at first, that’s over the course of 52 years.

That .54% extra is compounded each year for 52 years. It adds up over time.

Case Study: Why CAGR Matters over the Long Run

Let’s compare investing $10,000 into the US Market with a CAGR of 10.89% versus investing into Small Caps with a CAGR of 11.43%.

$10,000 compounded over 52 years at 10.89% is $2,159,752.28.

$10,000 compounded over 52 years at 11.43% is $2,780,422.45.

Let’s also assume that no more money was invested and that $10,000 was left untouched over time.

The dollar difference between 10.89% and 11.43% over 52 years is….

$620,670.17!

That’s a significant amount of extra money that can be used in retirement.

Real Returns: Adjusting CAGR of Money Supply Growth

The increase in the money supply also needs to be taken into account when looking at returns.

The M2 money supply had a CAGR of 6.63% from 1972 – present.

A “real” return would equal the specific asset class minus the money supply.

The US market had a CAGR of 10.89% from 1972 – present.

After subtracting the CAGR of the money supply, your “real” return would be around 4.26%.

4.26% represents real productivity gains created by the US market.

US Equity Styles vs. Money Supply CAGR: What Generated Real Wealth?

All US equity styles outperformed the CAGR of the money supply from the ending of the gold standard to today.

This means that no matter what equity style you decided to invest in, it generated real wealth over time. The productivity gains outpaced the rate of dollar debasement.

Of course as mentioned above, the small differences in CAGR might not seem like they would make a huge difference, but they do when they are compounded over time.

Deep Dive: The mechanism behind the 6.63% annual dilution of the dollar

How to Analyze CAGR with Portfolio Visualizer

Run your own backtest with this free Portfolio Visualizer tool

Portfolio Visualizer is a tool where you can choose the assets you want to invest in and look at the CAGR over whatever period of time you choose.

It’s a good way to compare different stocks, ETFs, and other assets over time.

You can also create your own portfolio of assets and analyze the CAGR of that as well. You can compare it to the CAGR of any asset you want.