Do you think that the Growth Portfolio is poised to outperform the balanced portfolio moving forward? You've mentioned in other threads that small caps have underperformed in the past 5 years; is that compared to large caps, or is that compared to an index?
Also, when comparing both portfolios to American ETFs such as VFV, they both seem to underperform. Which portfolio would you recommend for a long-term 40-year hold in a TFSA to maximize returns? Or would you recommend a different investment into an American fund to maximize returns over that same time horizon?
I like the strategy of investing in small-cap stocks for higher growth but also don't want to disregard the balanced portfolio if you believe that small-caps will continue to underperform moving forward.
Looking forward to hearing your thoughts
With a market backdrop that can favour small-caps over large-caps, we believe that the growth model portfolio can see outperformance. Small-caps have underperformed relative to large-caps over the past few years.
VFV ETF is the S&P 500, which has consistently had a stronger annualized return than the TSX over the past several decades.
While we cannot personalize responses, we feel diversification is key. We believe that US equities are typically stronger, more well-capitalized names, that have better liquidity and often times higher valuations. But, with that said, there are many great names in the Canadian landscape that offer high growth with reasonable valuations, and some of Canada's industries operate differently than the US, providing further differentiation.
We see small-caps eventually playing 'catch-up' to large-caps, and historically, small-caps can make big moves in a short amount of time, and investors just need to be there for those moves when they happen.
We would be comfortable with a mix between Canadian and US equities, while acknowledging that the S&P 500 has some of the largest and strongest names in the US, and historically the index has outperformed other markets. We would be comfortable with a small tilt or angle towards small-caps, given the potential for outperformance.