“Blue chips versus speculative stocks – where do investors get the biggest share market gains?”

You’ll always make the biggest killings and blow the most dough in the same darn place – where the risks are highest.

The following stats from the top of the market (November 2007) to the bottom (March 2009) and then back to recent peaks (October 2009) are telling.

The ASX20 index – Australia’s 20 largest, or blue chip, stocks – fell approximately 48 per cent from top to bottom. The recovery since has been about 53 per cent, but it is still down about 21 per cent overall.

The Small Ordinaries – those ranked 100 to 300 in the ASX300 – fell 66 per cent from top to bottom, have jumped 83 per cent from March to October, but were still down approximately 37 per cent from their peak.

Biggest falls, biggest gains, same place. Where risk is highest and that’s at the speculative, or small cap, end. Think pint-sized child-star Macaulay Culkin, who was explosive as a kid, but imploded like a supernova in his teens. (Can he recover to adult stardom? Do we care?)

I’ve traditionally been a big cap guy. And with gearing where appropriate, which is most likely to be suitable for Gen Xers (in both shares and property).

When you’re playing with leverage (e.g. margins loans, lines of credit or protected loans), it’s even more important to minimise risk by investing in the less-volatile, blue-chip end. That’s Bruce Willis – a relatively constant star, with small periods of lunacy.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser.