Is that a typo in the first paragraph

Yes, thanks. I have re-written the post here:

The forward PE of the S&P600 (small caps) is presently 15 which is a little below its historical average of 17 value since 2000. Refer to figure 2:
yardeni.com: S&P 600 | Charts | Yardeni Research

This contrast with the forward PE of the S&P500 (large caps) now trading at 22 versus its 25-year average of 16. Refer to figure 9:
yardeni.com: S&P 500 | Charts | Yardeni Research

But looking at the index quotes, small caps didn't perform as well as large caps the last 25 years. So perhaps it is better to hold the S&P500, despite being more overvalued (relative to their own past average multiples) than the S&P600? Well, not so fast, because historically the small caps (and medium caps, but for now I'm showing the small cap data) grew faster than the large caps looking back over the 20th C.

Even over just the last 25 years, where we have seen dominant tech firms taking much of the market's earnings, small caps still outperformed the large caps in sales per share growth (a good proxy for real growth as the margin changes have upper and lower bounds so the start/end values distort the sense of underlying growth). The small caps grew faster over the last 25 years at a rate of (90/10 - for a CAGR of 9.2%) versus (290/50 - for a CAGR of 7.3%) for the large caps. Much of the S&P500 index gains that you observe is just from the multiple increase, not from sales growth. Refer to figure 5:
yardeni.com - Largecaps vs smidcaps

By holding the S&P600 right now, through an ETF such as 'IJS' or 'IJR', you get a double whammy: (1) You are buying at a forward PE below its 25 year average, (2) the growth has historically been higher than the S&P500 both the last 25 years, and looking further back. (There are reasons to expect this to continue over the long term but that would take a longer post.)

There is a lot of discussion in the media, YouTubers, and amongst forums, to diversify away from US stocks to international ETFS. However, if you want to hold an ETF that isn't overvalued, just avoid the large cap stocks. IJR (or IJS which I slightly prefer) will do fine (for which the data above matches).

That doesn't say anything about how SPY versus IJS will perform the next 3-6 years, but a lot about their relative long-term performance, which is what counts for most true investors.

- Manlobbi