Small-Cap

What is a small-cap stock? Fact Sheet:

• Definition: A company with a market capitalization of between $300 million and $2 billion.
• Characteristics: Small caps are typically more volatile than larger companies, but they can also offer greater opportunities for growth.
• Related Index: Russel 2000 (see below).

Tips Investing in Small Caps Stocks?

Here are some tips for investing in small caps stocks:

1. Do your research. Just because a company is small doesn’t mean it’s a good investment. Research the company and its stock before buying.
2. Consider the sector. Small caps stocks can be more volatile than larger stocks, so it’s important to consider the sector the company is in before investing. For example, tech stocks may be more volatile than health care stocks.
3. Use limit orders. When buying small caps stocks, use limit orders to get the best price and avoid overpaying.
4. Diversify your portfolio.

Pros and cons investing in Small Caps

When you invest in stocks, you want to find companies with potential for growth. That’s why small caps stocks can be a good investment choice. They offer the prospect of capital gains as these businesses grow and become more valuable. Additionally, small caps stocks tend to be less risky than some other types of investments, such as penny stocks.

However, there are also some risks associated with small caps stocks. For one, they may be more volatile than other types of investments, so your returns could be higher – or lower – than expected. Additionally, these stocks may be harder to sell than blue chip or large cap stocks if the market turns sour and you need to cash out your investment.

Investing in Small-Cap vs. Large-Cap Companies

In general, small-cap stocks are riskier and provide greater potential for capital gains than large-cap stocks. Small caps are often ignored by institutional investors because they are above their tolerance risk. As a result, these stocks tend to be cheaper than large caps and may offer more value for investors who can stomach the higher risk.

Small-Cap Stocks and the Russell 2000

In recent years, small-cap stocks have outperformed their larger counterparts. This outperformance can be seen in the Russell 2000 index, which is made up of the 2000 smallest publicly traded companies in the United States.

One reason for this outperformance may be that small-cap stocks are less correlated with the overall stock market. They may also be less affected by economic downturns, since they are not as widely held as large-cap stocks. Small-cap stocks can be a great way to diversify your portfolio, and they may provide opportunities for greater returns over the long term.

How to Invest in Small Caps?

When looking to invest in small caps stocks, it’s important to find a broker that specializes in this area. Small caps stocks are typically more volatile and risky than larger cap stocks, so you’ll want a broker who can help you navigate these waters.

> Find your small cap broker reading our platform reviews here. Also don’t forget to check this article: Choosing a Stock Broker: 4 Critical Things to Consider.