Small Caps, Big Recoveries (and My Relatives)

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It’s funny, you know. For two decades, most of us have been operating under the assumption that market corrections are… optional. Like choosing between decaf and regular. My Aunt Carol, bless her, thought the 2008 crisis was a personal attack orchestrated by the cable company. She’s still convinced they’re tracking her grocery purchases. But the point is, we’ve gotten soft. 2008, 2018, even the pandemic blip—they all bounced back with a speed that felt…suspiciously convenient. Trillions in stimulus will do that, I suppose. Then came 2022, which felt less like a correction and more like a prolonged, existential sigh. It took until late 2023 for the S&P 500 to regain its footing, and even now, I find myself checking the numbers multiple times a day, like a nervous gambler.

And that’s the problem. We’ve forgotten what a real pullback feels like. The creeping fear, the late-night doomscrolling, the unsolicited investment advice from people who peaked at Beanie Babies. If the economy decides to cooperate with the general sense of unease, we might be in for another one soon. And when that happens, it’s usually not the blue chips leading the charge. It’s the scrappy little companies, the ones nobody notices until they’re suddenly, unexpectedly, thriving.

The COVID Comeback

Think back to the pandemic. It wasn’t Amazon and Apple saving the day, at least not initially. It was the smaller companies, the ones that were nimble enough to adapt. My cousin, Dale, briefly became obsessed with a company that made artisanal hand sanitizer. He was convinced it was the next big thing. It wasn’t. But the principle holds. Small caps fell harder during the initial crash, naturally, but they also rebounded with a surprising ferocity. For a few months, they ran neck and neck with the S&P 500, then started to pull ahead. It was…refreshing, in a way. Like watching the underdogs win.

Back to ’08

The financial crisis of 2008 followed a similar pattern. We all remember the bailouts, the panic, the general sense of impending doom. But once the dust settled, it was the small caps that really took off. For two solid years, they outperformed the market. It makes sense, really. In a recovery scenario, investors start looking for growth, and smaller companies have more room to grow. It’s easier to turn a small ship around than an ocean liner. Although, I once tried to turn a canoe around in a particularly strong current. It didn’t go well.

Small vs. Total Market

So, naturally, everyone wants to jump on the small-cap bandwagon. And there are plenty of ETFs to choose from, like the iShares Core S&P Small Cap ETF. But I’ve always been a bit of a contrarian. I prefer the Vanguard Total Stock Market ETF (VTI 0.76%). It’s not that I don’t believe in the potential of small caps. It’s just that I like a little diversification. And a little peace of mind. Small caps can be volatile. They can be unpredictable. They can remind me a little too much of my Uncle Jerry.

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The total market ETF gives you exposure to both large and small caps, offering a more balanced approach. It’s not the most aggressive strategy, but it’s not the most boring, either. It’s a bit like ordering a decaf latte with a shot of espresso. You get the best of both worlds. And, frankly, after years of navigating the market, I’m starting to appreciate the value of a little moderation. Any of these ETFs would likely outperform in a recovery cycle, but VTI, in my opinion, strikes the right balance. It’s a sensible choice for a sensible time. Or at least, as sensible as anything can be in this increasingly nonsensical world.

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2026-03-09 18:05