Sep 17, 2012

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Large Cap Vs Small Cap For Investors With Different Plans

Large Cap vs Small Cap

Unsure about large cap vs small cap? Cap is the short form of capitalization. This term is used to classify the size of a company. Companies whose market cap is between 10-200 billion dollars are called big or large caps. Companies that range between 2 million to 10 million dollars are called mid caps, and new companies that have a market cap from 300 million to 2 billion dollars are called small caps. Stock funds are grouped according to the cap size they belong to.

Gathering information about large cap vs small cap helps plan your investment strategy effectively. For many investors however, a large capitalization fund is the essence of long-term holding. It is, however, not an ideal way to invest for investment savings. With small cap companies, although they are at a greater risk, they have the potential for great capital appreciation.

The shares in small cap companies are cheaper and you can buy more shares for the money you want to invest. The investor can spread the risk. For the amount of money he has to invest to buy one share of a large cap, he can buy ten small cap shares. Even if a few of the small cap companies in which he invested fail, the one stock cap company that makes it big will give more value for all the money invested.

Still Confused Between Large Cap vs Small Cap?

If you are not too sure about large caps vs small caps, small caps beat the markets, as they have surged over a period of time due to various factors. If you are looking for short term profits, then trading in small cap stocks is the best option, as they are more volatile than large caps; though, this may not be ideal for long term investors.

large caps vs small caps have their risk factors. Small caps can give you more return on investment both in the short and long run. The risk factor though is higher. The level of risk is far less in large companies. Although they are likely to fall hard, they are less likely to fall compared to small caps. If you do not like to take risk and want to keep your investments safe, then investing in large caps is better.

Large cap stocks attract dividends. Large cap companies pay a certain percentage of their income as dividends to their shareholders. Investing in small caps is a good investment strategy if you are a young investor wanting quick returns for your small investment. Large cap stock is often preferred by older investors who like to know that their investment is safe and secure even during the inflation and unstable economy. Considering large cap vs small cap can give you great returns in spite of varied risks.

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