Do “big investors” have better investment results than “small investors”? Many business managers expect that their wealthy clients with large portfolios ($25m+) should have better returns because the clients have access to the best and brightest members of the investment industrial complex. Many business managers believe that size does matter.

Based on our experience of doing investment manager audits since 2005 for portfolios as small as a few hundred thousand dollars to mega pension plans exceeding $20b, the size of the portfolio is not a contributing factor in the portfolio’s risk and return outcome. To be sure, larger investors do have access to esoteric, non-correlated, alternative investment products. But these more exotic investment options that are only available to “qualified” investors add complexity, cost, and opacity to the investment process which smaller investors are not burdened by. Given a similar asset allocation, we have not observed that the risk and return outcomes of large portfolios are better than the retail investment options available to investors of more modest size. In short, size does NOT appear to matter.

If you disbelieve our observation, simply test the performance of your largest client’s portfolio against the return produced by the Vanguard Lifestrategy Moderate Growth mutual fund (VSMGX) which has a globally diversified 60% equity and 40% bond allocation and requires a minimum investment of only $3,000. If the best and brightest minds in the investment industry can’t outperform this retail mutual fund that is designed for investors who are just starting out, it puts into question the assumption that size matters. (If your largest client’s portfolio is more conservative than a 60% equity and 40% bond allocation, you can instead use the Vanguard Lifestrategy Conservative Growth fund (VSCGX) which has a 40/60 allocation.)

I am not arguing that business managers rush off and recommend that their clients fire their investment managers and move all their money to Vanguard funds or a model portfolio from Betterment. I merely suggest that a prudent business manager will test the thesis that the investment industrial complex purports–that the big guys do better than the little guys. Trust, but verify.