|
E-mail this page to a friend!
Money Matters for Seniors
Senior Investors Should Understand Market
Capitalization
Small, mid and
large cap stocks all have their individual benefits.
By Robert Valentine,
Certified Senior Advisor
April 13, 2006 - One size usually doesn’t “fit-all”
and especially not when it comes to the stock market. Choosing the right
sized company or fund can be a tricky prospect for many senior citizens.
“How are the different levels defined?” and “What are the pros and cons
of each type?” are two major questions many people have.
When dealing with market capitalization and deciding which size is
right, it can be a tough choice, so here’s an overview of all three
major categories of market capitalization.
Small Caps
Small cap stocks are companies who typically have a
small market capitalization. (Usually somewhere between $300 million and
$2 billion, but definitions vary). Market capitalization, simply put, is
the price of the company’s stock, multiplied by the number of shares
outstanding. It’s basically the value the market places on a company.
With the potential for growth, comes the potential
for risk as well. All portfolios should be properly diversified to help
reduce overall portfolio risk. Investing is small cap stocks comes with
an additional set of risks unique to these types of investments,
consequently any money you invest in small caps should be money you’re
prepared to expose to these risks. Small cap stocks are also more
difficult to research and choose precisely because of their obscurity.
Mid Caps
The definition of a mid cap varies greatly
depending upon who you ask. Some define mid caps as being companies with
a market capitalization between $1.5 billion and $5 billion. Others bump
that number up a bit and define them being between $2 billion and $10
billion. In the end, it depends on exactly who you ask. Mid caps are
generally thought of as a happy-medium between the growth of a small
cap, and some of the stability of a large cap.
Large Caps
Large caps also vary in range, depending on who’s
answering. In many cases, large caps, or “blue-chip” stocks, are stocks
with a market capitalization between $8 billion and $100-200 billion.
This range includes some of the giants. With the larger cap companies,
you get more proven stability and less volatility. But in many cases,
that means less glamorous returns and a smaller chance for growth.
As with the other two levels of capitalization,
it’s not a one-size fits all. Some investors want the proven reliability
of the big names. Others value the large caps because they’ve already
experienced their growing pains, and are now established. Many large cap
companies also do a great deal of work around the world, which means an
added flavor of global diversification. Numerous developing countries
are seeing the birth of a middle-class (China, Brazil, etc.) and many
large U.S. companies are seizing the day and expanding their reach.
Each type of market capitalization category comes
with its own unique risks and rewards. Trying to balance the risks and
rewards of all of the assets in your portfolio can be tricky.
Consulting with a financial professional can help you identify which
investments may be appropriate for your situation.
Robert Valentine is a Certified Senior Advisor in
Huntington Beach, CA. He can be reached at (877) 732-2637.
About author
This article was submitted by Robert
Valentine of Financial and Retirement Management. Robert (CA Insurance
Lic #0C23496) is a Registered Representative of and offers securities
through Securities America, Inc., a Registered Broker/Dealer, Member
NASD/SIPC. Advisory services offered through Financial and Retirement
Management, a Registered Investment Advisory firm. Robert is a Certified
Senior Advisor in Huntington Beach, CA. Several of his articles on
financial planning matters that concern investors have been published by
SeniorJournal.com. Robert
can be reached at (877) 732-2637.
Click here to Search SeniorJournal.com for more on
this subject
Click to More Senior News on the
Front Page
Copyright: SeniorJournal.com |
