FOUR FACTORS

Starting in the 1970s, ways to increase the returns in your portfolio started to come out in academic research. 

The first research (of the four Nobel Prizes  awarded) showed that:

1. Stocks outperform bonds, long-term

(I know, it seems common knowledge now). So the first principle to apply to our real-world portfolio is that the more stock you have in your portfolio, the more it has grown.

Then a decade later, two researchers revealed:

2. Small Companies (as a group) outperform Large Companies (as a group), long-term.

Just like stocks outperforming bonds, this principle shows up in the US, International, and Emerging Markets. Also, it does not show up every year (some years bonds outperform stocks, and some years large outperforms small). However, the odds are in our favor if we will include more small companies in our portfolio.

Interestingly, about another decade later, it was shown that:

3. Value Companies (as a group) outperform Growth Companies (as a group), long-term.

The same foundation here as the other principles—it shows up in all markets, and it does not happen every year. You would be wise to have more value stocks in your portfolio.

Finally, academic research shows:

4. Highly Profitable companies outperform Low Profitable companies, long-term.