Author: Brandon T. Oliver, CFP^®, Partner, Arcwood Financial 

Just as design trends evolve, companies of different sizes respond uniquely to market conditions. Embracing this diversity in your "portfolio" can offer a broader range of growth opportunities. Diversification, much like balancing color palettes, is a strategy to manage risk, recognizing that it doesn't guarantee immediate returns or shield against unforeseen challenges.

In 2022, the U.S. stock market faced challenges, with the S&P 500 index experiencing a 19.4% downturn. While this may seem discouraging, there's a fascinating story within the market's ebb and flow, especially for those seeking to diversify their portfolios.

Consider this: the S&P MidCap 400, representing midsize companies, concluded the year with a 14.5% decline, outperforming the larger S&P 500. Meanwhile, the S&P SmallCap 600, comprised of smaller companies, fared marginally better with a 17.4% decrease.

Expanding Horizons

These market trends emphasize the varying performance of companies based on their size, highlighting the potential benefits of diversifying portfolios. Diversification, while not a guaranteed profit strategy, can help manage risk and open doors to a broader range of growth opportunities.

For interior designers seeking a convenient and comprehensive approach to size-based diversification, mutual funds or exchange-traded funds tracking indexes based on market capitalization offer a practical solution. Standard & Poor’s indexes, with categories like S&P 500, S&P MidCap 400, and S&P SmallCap 600, provide a useful benchmark for many funds.3

Size Classification:

S&P 500: $14.6 billion or more
S&P MidCap 400: $3.7 billion to $14.6 billion
S&P SmallCap 600: $850 million to $3.7 billion

Average Annual Return:

(Source: Refinitiv, 2023, for the period 12/31/2012 to 12/31/2022)

For interior designers, mid caps may offer greater growth potential than large caps, reacting more nimbly to changes in the business environment. While associated with higher risk and volatility than large caps, mid caps are considered more stable than small caps. Small-cap stocks, with the potential for the highest growth, react quickly to market opportunities but come with increased risk and volatility.

It's essential for interior designers to recognize that the investment landscape is subject to market conditions, and returns may fluctuate. Mutual funds and ETFs, offering a diversified approach, should be carefully considered after reviewing their prospectus for a thorough understanding of their objectives, risks, charges, and expenses. This information, available through financial professionals, is critical for making informed investment decisions in the ever-evolving market.