Small Cap Stocks

Small cap stocks are a popular security type investment. Companies that have small amounts of market capital use small cap stocks to gain more capital. This gives investors the opportunity to purchase these stocks to add to their investment portfolio. The market capitalization in a specific company will equal the price of one stock share in that company multiplied by the number of outstanding shares that the company has. Outstanding shares are basically the number of shares that the company has issued to be purchased by individual investors. Investors who enjoy searching for and finding small company stock that may at some point in the future become blue chip stocks are more likely to purchase small cap stocks.

While there seems to be no official definition in the market for small cap stock value, they are typically considered to be shares of any company that has a market capitalization of anywhere between $300 million and $1 billion US Dollars. Companies that have market capitalizations of between $1 billion and $10 billion USD are considered to have mid cap stocks while those with market capitalizations of $10 billion to more than $200 billion USD are considered to have large cap stocks.

Many investors feel that small cap stocks are beneficial simply because they offer many advantages when compared to regular mutual funds. Some feel that mutual funds are unable to offer small cap stocks significant positioning within their funds because they have various restrictions that will limit them from purchasing larger portions of outstanding shares from smaller companies. As with any investment, particularly stocks, small cap stocks do have their various risks and these risks should be understood before an initial investment is made. They may not be the right choice for an individual investor who prefers to put their money in a safer or a long term investment tool.

It is important that any individual investor take the time to perform research before adding small cap stocks to their investment portfolios. If you are planning to invest in small cap stocks there are a number of things that you will need to consider. You will need to consider your investment objectives such as your ability to handle risks as well as expenses before you choose a small cap stock for your investment. Small cap stocks typically have higher volatility therefore they offer a much higher potential for a good return on your initial investment. You should consider however that because they have higher volatility than mutual funds and other investment tools, they also have higher risks and the potential for a much greater loss due to their risk of price fluctuations and lower stability than other investment options.

There are a number of benefits to investing in small cap stocks as well but again, research is key in seeing greater returns and protecting your investment. Small cap stocks tend to not get as much attention from traders or analysts which makes them a better choice for many investors. They are not included in mutual funds so larger investment firms and companies typically pay them little mind. They receive very little coverage by analysis which can also offer a major advantage to investors. Because they are typically under the market radar you may find that small cap stocks are often under priced which can be another good advantage to choosing this investment option.

Small cap stocks also have a good growth potential. Large cap companies have already been established as money producing companies. Growth for large cap companies and even mid cap companies in some cases is relatively slow. Smaller companies however have the potential to grow substantially, giving you a much greater return on your investment. In addition, smaller companies offer more flexibility than larger companies which can add to their potential for growth. Larger businesses simply cannot change as quickly as smaller ones. Small cap stock companies have the opportunity to change and attempt new things to remain in the market. This offers a good potential for seeing growth rates in the double digits. Many investors choose the stability of large cap stocks simply to protect their initial investment. Small cap stocks however can offer a good option for individual traders, offering a great return on investments and good diversity for your investment portfolio.

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