For decades, high-growth opportunities in the U.S. equity market were often reserved for large institutions with deep pockets and specialized research teams. Today, that dynamic is changing. Technological advances, policy support, and the proliferation of ETFs and mutual funds are

democratizing high-growth opportunities and allowing individual investors to build truly big portfolios by accessing the small-cap segment—historically one of the most rewarding areas for outsized returns.

Overconcentration and the Case for Diversification

In June 2015, U.S. endowments and foundations allocated 51.7% of their assets to public and private equities. By June 2025, that figure had surged to 64.8%. Meanwhile, U.S. households achieved an all-time high equity share in their financial assets in Q2 2025, driven by an AI-led leadership in large-cap stocks.

While concentration in a handful of mega-cap names can fuel spectacular short-term gains, it also introduces significant risks. A sudden shift in market sentiment, regulatory changes, or technological disruption can trigger steep drawdowns. For small investors, mirroring this narrow equity-heavy approach can jeopardize long-term goals.

By integrating small-cap stocks and other underrepresented segments, you can pursue superior earnings growth potential and introduce diversification benefits that restore resilience to any portfolio.

Why Small-Caps Matter for 2026

Small-cap stocks have experienced a notable turnaround. Since the Russell 2000 low on April 8, 2025, the index is up over 45%, while micro-cap stocks have climbed more than 68%. This rebound comes after a 14-year stretch of underperformance relative to large-caps, creating a powerful setup for mean reversion.

Key drivers of this potential outperformance include:

• Valuation Edge: Small-caps trade at attractive absolute levels and remain historically cheap versus large-caps on metrics like EV/EBIT.
• Emerging Earnings Acceleration: Analysts forecast a steeper earnings trajectory for small-caps in 2026, driven by niche markets and flexible cost structures.
• Historical Precedent: Periods of rising interest rates and inflation—like the 1970s and early 2000s—favored small-caps, underscoring their adaptability.

With small-cap operating margins currently around 6% versus 18% for large-caps, there is ample room for margin expansion as economic conditions normalize and innovation-driven efficiencies take hold.

Four Tailwinds Driving Small-Caps Forward

These combined forces create a unique environment in which small-cap firms can thrive, offering individual investors a chance to ride the same tailwinds that power institutional strategies.

Balancing Risks and Building a Resilient Portfolio

No investment strategy is without risk. Small-caps can be more volatile, and pockets of speculative exuberance exist—particularly among no-revenue AI, quantum computing, or eVTOL firms valued at multibillion-dollar levels.

• Market drawdowns can be steeper if economic conditions deteriorate abruptly.
• Inflation remains a concern given aggressive fiscal spending.
• Active management and selective stock-picking are essential to avoid overpriced niches.

Alternatives beyond small-caps are also underutilized. Only 18% of nearly 24,000 advisor portfolios include alternatives, with average allocations of 8% in moderate models and 18% in hybrid 60/40 strategies. A well-balanced portfolio blends equities, bonds, small-caps, and alternatives for smoother risk-adjusted returns.

Practical Steps for Small Investors

Fortunately, gaining exposure to small-caps and other dynamic asset classes has never been easier. Low-cost ETFs and mutual funds deliver broad or targeted small-cap access with no high minimums.

• ETF Options: Look for funds tracking the Russell 2000 or specialized small-cap growth indices from providers like iShares and Vanguard.
• Mutual Funds: Consider Morningstar five-star small-cap funds that emphasize sector balance and risk controls.
• Sector Plays: Target power-generation or industrial ETFs poised to benefit from AI-related capex.

Adopt a long-term mindset. Purchase at attractive valuations, rebalance periodically, and resist the urge to time short-term market movements. History shows that small-caps reward patient investors, especially after extended periods of underperformance.

Embracing the Future of Democratized Investing

“Small-caps will likely outperform! The long, dark winter…is well understood. 2026 could be the year.” This optimistic view captures the essence of what lies ahead: a new era in which individual investors harness

institutional-grade strategies without the complexity or capital barriers of the past. By diversifying beyond large-caps and embracing small-cap opportunities, you can build a robust, growth-oriented portfolio tailored to your goals.

Empower yourself through education, disciplined execution, and strategic allocation. In doing so, you’ll not only participate in the next cycle of market leadership but also affirm the principle that great investment opportunities should never be limited by account size.