Most people know that owning stocks is important for building wealth over time. When stocks are part of a complete investment plan, they have helped many people reach their money goals throughout history. But this raises a question: what kinds of stocks should you own? Many investors and news outlets focus on the biggest companies, but there are many other types of stocks that can be valuable parts of a well-rounded investment portfolio.

When people talk about the stock market, they usually mean the S&P 500 or Dow Jones Industrial Average. The S&P 500 tracks how well the 500 biggest public companies are doing. Company size is measured by something called market capitalization, which is basically how much the whole company is worth. The Dow only includes 30 large, well-known companies. Both of these focus mainly on companies that are based in the United States.

Because of how these indexes work, they only look at the biggest U.S. companies. This helps us understand how the overall stock market and economy are doing, since the largest companies drive many trends. But when putting together an investment portfolio, these indexes might miss other good opportunities. This is especially true when just a few extremely large companies, including those in the Magnificent 7, have been responsible for most of the gains and losses in the market.

In today’s market, how can investors look at more options? Small company stocks and international markets are two areas that can provide opportunities and help spread out risk. Each has different qualities and potential benefits that can make portfolios stronger, especially when markets are unpredictable.

Small companies have performed poorly but offer benefits

Small company stocks are companies worth a few hundred million to a couple billion dollars. This is much smaller than mid-size and large companies that are worth tens to hundreds of billions, and mega companies which are now worth trillions of dollars.

The Russell 2000 index, which tracks small company performance, has made 5.0% per year over the past ten years compared to 10.5% for the S&P 500, as the chart shows.¹ This gap has been especially large in recent years as the market has become more focused on large and mega companies, particularly in technology and artificial intelligence areas. Small companies typically have less involvement in technology and make more of their money from U.S. operations, making them more affected by changes in U.S. economic policies and trade rules.

Small companies have struggled this year because of ongoing uncertainty around trade policies and economic growth. However, this has made their stock prices more attractive. Small company stocks are currently trading at more reasonable price levels compared to large company stocks. The Russell 2000 currently has a price-to-earnings ratio well below its 10-year average. Even more notable is the price-to-book value of approximately 0.8x, much lower than the historical average of 1.2x. In comparison, many of the S&P 500’s price measures are well above average, if not near all-time highs.

Interest rates affect large and small companies differently. Small companies often need to borrow money at rates that change with market conditions, making them more sensitive to interest rate changes. While this created problems when interest rates rose quickly starting in 2022, the more stable environment since then could help. This is especially true if the Federal Reserve continues to lower rates later this year.

Many of these measures show that small company stocks are priced more attractively than many other parts of the market. While large companies will continue to be important in many portfolios, this shows that there are opportunities in many other parts of the market too.

International markets continue to have attractive prices

Another area with attractive stock prices is international stocks, which are usually divided into two main groups: developed markets (like Europe, Japan, and Australia) and emerging markets (including countries like China, India, and Brazil). These categories reflect differences in how mature their economies are, how their markets work, their rules and regulations, and more.

Even though U.S. stocks have done better than global markets for much of the past ten years, international stocks have performed better this year. The MSCI EAFE index, which tracks 21 key developed countries, has gained about 17.5% so far this year in U.S. dollar terms. The MSCI EM index, which tracks emerging markets, has risen 10%.² This has happened despite global uncertainty due to trade issues.

Not only have these markets performed better this year, but the difference in stock prices remains large. While the S&P 500 trades at high price levels, international markets offer more attractive prices, as shown in the chart above. This is partly due to political and economic challenges in many of these regions over the past ten years, some of which have begun to improve.

One key difference between investing in the U.S. and internationally is that currency changes can affect returns. The weaker dollar has created good conditions for U.S.-based investors. This is because foreign investments increase in value when the currencies they are priced in get stronger, allowing them to be converted back to more dollars. This currency boost has been a meaningful contributor to the strong performance of international stocks this year, providing an extra benefit beyond how well the foreign companies themselves have done.

It’s important to spread investments across regions and company sizes

For long-term investors, keeping some exposure to areas like small company and international stocks can help create more balanced portfolios. This is especially true after the strong performance of large company stocks which have been driven by just a handful of the biggest companies.

This doesn’t mean that U.S. large companies will become less important. This is also not a suggestion to make big changes to well-built portfolios. Instead, maintaining long-term portfolios is about holding the right mix of all these types of investments. By including more attractively priced parts of the market, we can potentially improve long-term risk-adjusted results and take advantage of market opportunities. While any single type of investment may underperform during certain periods, their different characteristics and return patterns can provide valuable diversification benefits over time.

The bottom line? While the S&P 500 and Dow remain important measures, investors should consider the benefits of spreading investments across many other parts of the market, including smaller companies and international stocks. Holding appropriate portfolios for the long run is still the best way to achieve financial success.

1. Russell 2000 and S&P 500, price returns, from January 2, 2015 to May 23, 2025

2. MSCI EAFE and MSCI EM, total returns, January 1, 2025 to May 23, 2025