Historically, investors have generally turned to large-cap stocks (Dow average and S&P 500’s) in poor economic times. Many have repeated this behavior in today’s market, but are finding they are not reaping the profits they might have had by purchasing small-cap (Russell 2000 and S&P’s small stocks) at this time. This strategy of buying large-cap stocks has been beneficial to investors in the past but, in 2008, the market is responding differently to the economy, as small stocks have fallen much less than the larger stocks.

Year to date, the Russell 2000 is down 6.2% and the S&P 600 declined 4.5% The large stock groups during this same period were down 15%. Both have been increasing steadily since July 15th of this year, but the small stocks have been far outpacing the larger ones, 8.5% to 2.4%.

Stocks often provide an indication of where the economy is at during a specific period of time. If the market maintains its current direction, we could be moving in the right direction. However, sudden changes often take place in the marketplace, so no one can predict what will happen next. Our decisions can only be made on past performance of the market during weak economies and direct results being seen at this time.

The most important thing to remember about your investment portfolio is to keep it diversified and well-balanced. In order to do this it is necessary to review your portfolio frequently so that you can adjust areas of profitability versus areas of loss. If you do this, you will always be ready to go in whatever direction the stock market takes you. The biggest mistake, of course, would be to put all of your eggs in one basket. This is a position you never want to take with your financial future. A good balance and diversification are the keys to success.

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