The Untold Potential of Undervalued Assets: A Guide to Doubling Your Investments

In the face of rising interest rates and recession concerns, the stock market has continued to deliver remarkable performance, with the S&P 500 surging by 24% over the past year. However, this strong performance has been largely driven by the dominance of growth stocks, particularly the mega-cap technology giants. Meanwhile, value stocks, small-cap stocks, and real estate investment trusts (REITs) have all significantly underperformed the overall market. But a shift is on the horizon, and savvy investors who recognize the potential in these undervalued asset classes could be poised to double their money in the next five years.

Unlock the Hidden Gems in the Market's Shadows

The Underperformance Paradox

Despite the broader market's impressive gains, certain sectors have been left behind. When comparing the performance of the S&P 500, value stocks, small-cap stocks, and real estate stocks over different time frames, the disparity becomes clear. Over the past year, the S&P 500 has surged by 23.6%, while value stocks, small-cap stocks, and real estate stocks have returned 13.5%, 10.5%, and 14.2%, respectively. The trend continues when looking at 5-year and 10-year returns, with the S&P 500 significantly outpacing these other asset classes.

The Catalyst for Change

The primary driver behind this underperformance is the interest rate environment. Value stocks, small-cap stocks, and real estate stocks are more sensitive to changes in interest rates, as they tend to rely more on borrowed money (debt) compared to the largest companies in the market. Additionally, these sectors are more likely to pay dividends, and as money has flowed out of the stock market and into risk-free assets like Treasuries and CDs, these groups have been disproportionately affected.However, the tides are turning. The latest market expectations indicate that the Federal Reserve is poised to start aggressively lowering interest rates, beginning as early as September. By next September, the median expectation calls for a total of 2.25 percentage points of rate cuts, according to CME Group's FedWatch tool. As rates fall and investors rotate money back into the market, value stocks, small-cap stocks, and REITs are poised to be the big winners.

The Opportunity at Hand

Investors don't need to pick individual stocks to capitalize on this potential resurgence. There are three Vanguard ETFs that offer broad exposure to these undervalued asset classes and have the potential to double investors' money over the next five years:1. Vanguard Value ETF (VTV): This ETF owns 342 different value stocks, with top holdings including Berkshire Hathaway, Broadcom, and JPMorgan Chase.2. Vanguard Russell 2000 ETF (VTWO): This ETF invests in 2,000 small-cap companies, diversifying its holdings and limiting individual stock risk.3. Vanguard Real Estate ETF (VNQ): This ETF provides exposure to more than 150 REITs, with large positions in industry leaders like Prologis and American Tower.These Vanguard ETFs offer low investment fees, with the most expensive (the real estate fund) having an expense ratio of just 0.13%. This means that for every ,000 invested, only .30 in fees will be assessed annually, ensuring that the majority of investors' returns stay in their pockets.

A Bold, Yet Achievable, Prediction

For an investment to double over a five-year period, it needs to generate approximately 15% annualized total returns. This would be significantly higher than the long-term average of the S&P 500, which is around 9%-10%. However, the valuation gap between these underperforming asset classes and the broader market, combined with the tailwind of falling interest rates, could make this bold prediction a reality.While past performance is no guarantee of future results, the stage is set for value stocks, small-cap stocks, and real estate stocks to stage a remarkable comeback. By investing in these Vanguard ETFs, savvy investors can position themselves to potentially double their money in the next five years, capitalizing on the untapped potential of the market's overlooked gems.