What segments of US stocks outperformed in 2024?
Posted on January 3, 2025
I like arranging the most recent calendar year returns in the 3 by 3 matrix of the Investment Style Box. I get a snapshot of what outperformed and what underperformed the US stock market as a whole. This post shows ~20% real return for US stocks. That’s about triple the long-run average return of ~7% real return per year. Large Cap Growth stocks trounced all other eight squares in the matrix. Patti and I hold a Total Market Index fund, and it handily beat the returns in seven of the nine boxes. The correct tactic is to Keep it Simple. Don’t try to tilt your portfolio overweight a sector. The winning tactic is to hold a bland, Total Market Index fund.
Details:
• The real return for US stocks of +20% this year is on top of the +22% real return last year. We needed that, since the -24% real decline in 2022 was the fourth worst in my lifetime. We now have ~10% more in real portfolio value than at the end of 2021. Historically, that’s a fast recovery from an annual decline that deep. The average real return rate over the last five years is 9.2% per year.
• Large Cap Growth trounced every other sector; it led all but one other sector by more than 16 percentage points. The returns for Large Cap blend will be similar to an S&P 500 index fund, and that outperformed a total market fund because the returns of ~3,500 mid and small cap stocks lagged those largest 500.
• The ONLY way to match the return for the total market this year was to hold enough of Large Cap Growth stocks. If you tilted your portfolio to hold less than what the total market index held, you fell short – and perhaps far short – of matching the return of a Total Market index fund.
Large Cap Growth has been the obvious performer over the past five, ten and 15 years. Essentially, it’s the one box of nine that outperformed the Total Market. Over the past ten years, seven underperformed badly: two lagged by ~30%; another four lagged by more than 20% in dollar return. This tells me to NEVER try to tilt to a guess of to the boxes I might think will outperform.
Even more details:
The columns in the Style Box are Value, Blend, and Growth stocks and the rows are Large-Capitalization (Cap), Mid-Cap, and Small-Cap stocks. The nine boxes in the 3 by 3 matrix aren’t equal in market value of the stocks they hold. The row of Large-Cap represents about 80% of the total value of all US stocks. I use Vanguard index funds with tiny expense ratios for the returns for each box.
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For reference, I’ve displayed the Style Box before: for the years 2017, 2018, 2019, 2020, 2021, 2022, and 2023.
I also display the +23.7% return for VTSAX – the Vanguard index fund that holds all but the very smallest all traded US stocks. (Patti and I hold the Total US Stock fund FSKAX, +23.9% in 2023.)
== The boxes for 2024 Relative to VTSAX ==
You HAD to hold enough of Large Cap Growth to match the market. Seven of the nine boxes lagged the total market by more than seven percentage points in return.
The same pattern is repeated for five, ten and 15 years: you had to hold enough of Large Cap growth to be close to matching the total market return.
One cannot predict which style will outperform in the future. History isn’t a good predictor. I’m not guessing. I’m sticking with my Total Market fund.
== 2024 World stocks +16.9% ==
The total world market stock index, MSCI All Cap World Index through December was +16.9%. US stocks are roughly 60% of the total value of all stocks in the world. MSCI index excluding the US was 5.7%. Total International Stocks (VTIAX) were +5.1% in 2023. (Patti and I own the ETF of this: VXUS = +5.1% for 2024.
Conclusion: 2024 was a terrific year for US stocks on top of a terrific 2023. The real return was ~20%. That’s ~triple the long run or expected return rate for stocks. We’ve bounced back from the debacle in 2022 and are ~10% ahead of where we were in real spending power at the end of 2021.
Every year some segments of the market outperform and some to underperform. In 2024, the return for Large Cap Growth stocks trounced the other eight boxes in the 3 by 3 matrix that describes market returns. Large Cap Growth was better than Large Cap Value in 2024 by more than 16 percentage points.
Over a five, ten, and 15-year history, Large Cap Growth has outperformed all other styles. It’s basically the only box that has outperformed a Total Market fund.
Tom. Happy New Year to you, your family and the rest of your “fan club”! The methodologies you laid out in Nest Egg Care have given my wife and me confidence that our retirement plan will keep us financially safe for many more years to come! I look forward to continue reading your weekly posts!
Regards,
Tom