NEW YORK (CNN/Money) - Since I have 30 or so years until retirement and can tolerate some volatility, I've decided to put 80 percent of my 401(k) and IRA assets in stocks. I've noticed, however, that many asset allocation models recommend limiting small-caps to only 15 percent or so of one's overall stock holdings. Why so little in small caps?

-- Ben Stapleton, Madison, Wisconsin

I can see why you might think that small cap stocks ought to play a bigger role in the portfolio of a long-term investor willing to take outsize risk.

After all, over very long periods of time, small-fry stocks tend to outperform the big boys by an annualized one-and-a-half to two percentage points, an edge that can make for a substantial difference over time.

Recently, the runts have outdistanced the behemoths by an even larger margin.

Over the past three years, for example, mutual funds that specialize in small-cap value stocks gained an annualized16.1 percent on average, easily surpassing the Standard & Poor's 500 index's 3.5 percent return over the same period.

But before you go plowing much more than 15 percent or so of your overall stock position into small caps, there are a few things you ought to consider.

First, the extra gains don't come without extra risk.

Yes, you say you can tolerate some volatility. But when it comes to small stocks, we're talking a lot of volatility.

Over the past eight decades or so, small stocks have been roughly 60 percent more volatile on average than large stocks, according to data compiled by Ibbotson Associates.

(The benchmark for volatility in this case is standard deviation, a measure of how much an investment's returns fluctuate around its long-term average return. For more on how this barometer works, click here.)

This higher volatility has two implications, one of which is obvious, the other less so.

As you'd expect, higher volatility of returns means that small-caps tend to fall much further than large caps during a market setback. If the broad market drops, say, 10 percent, small-caps might drop 15 percent or more.

(This is generally the case, but depending on valuations and investor sentiment, small caps might fare differently.)

The less obvious effect of higher volatility is this: the more volatile a stock (or any investment, for that matter), the wider the possible range of wealth you might attain.

When you invest in something that has little or no volatility -- a CD, say -- you pretty much know what the value of that investment will be in the future.

But with stocks, you don't. They could be high or low or somewhere in the middle.

Invest during a time when small stocks are on a run, and you end up with a big pile of money. Invest just before they go into a big funk, and you end up with a much smaller pile.

All of which is to say that higher volatility isn't just a matter of short-term pain, which is how most investors think of it. It also has long-term implications.

Tilting your mix more toward large caps -- and adding some cash and bonds to your portfolio -- dampens volatility, and narrows the future range of returns.

One other thing to keep in mind. One reason for limiting small-cap exposure to 10 percent to 15 percent of your stock holdings is that this amount is the small-cap weighting in the overall stock market.

So what does that have to do with anything, you may ask?

Well, the stock market is the way that investors allocate capital to various sectors of the economy and to individual businesses.

The reason that large caps are large caps is that investors overall have decided (through their dollar "votes") that they deserve a bigger share of the total investment dollars.

And because small caps receive less capital, investors have essentially decided that these companies deserve less.

That judgment may change over time. Some small caps grow into large caps. But this is the consensus of the markets right now.

If you invest a larger percentage of your stock holdings in small caps than the market overall, you're essentially saying that all other investors as a group have it wrong and that you've got it right.

Hey, maybe that's the case -- or maybe you've got a different risk-reward scale than investors overall.

But if you go against the collective wisdom of the market, you should: a) know that you're taking this contrarian step; and, b) have a good reason for doing it.

By which I mean, you should have some special insight that you believe other investors don't have.

So, my recommendation is that unless you feel you know something that investors overall are missing, you should probably keep the small-cap portion of your holdings to 10 percent to 15 percent of your overall portfolio. And even if you decide to go beyond that range, I'd suggest not going too far beyond it, just on the off chance that your insight isn't as special as you thought and your appetite for risk isn't as large as you imagined.

Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World."