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how does the stock market
work >
trading penny
stocks
small cap vs large cap
Most inexperienced investors are drawn to the potential
returns that small capitalization (small caps) stocks can offer. Rather than
settling for an average return of around 11% per year (the average
rate of return if invested in the main U.S. equity markets since 1950), imagine the
independence your family could enjoy if you could be getting 100% returns on
your investment. You wouldn't have to work, your loved ones wouldn't
need to be concerned about bills, and you could finally move into that dream house
you've constantly wanted.
If only it were that easy - everyone would be doing it. So, before you begin investing
in the stock market,
it's important to fully grasp the distinctions between small cap vs
large cap stocks.
If we
define small cap stocks as publicly traded companies that have a market cap
of under $1 billion, you can appreciate these types of companies have
lots of room to grow - and as a shareholder, you'll be rewarded for that
growth when the corporation starts to successfully execute on its business strategy.
Small caps, also known as penny stocks, may also be broken down further
into microcap and nanocap stocks. Like small caps, these types of stocks usually are not
without their own risks. Nevertheless, a organization that is raising
it's quarterly earnings per share, profit margins and customer base, will benefit from a higher
share price. Shareholders of small cap stocks should also be aware that
there's an increased volatility associated with them. . In return for
taking on more risk, the rewards may be greater if you can uncover the
right set of stocks.
Large caps on the other hand, come with an established history. They're
typically brand name corporations that you are already well aware of
(Johnson & Johnson, General Motors, Exxon Mobile, Coca-Cola). Their
client base may grow at a more measured rate, nevertheless, their
customers are usually dedicated to the product or service. Consider
Pepsi vs Coke - you wont see a lot of Coca-Cola drinkers ordering a
Pepsi. The market cap of all large caps are a minimum of $8 billion
(midcap stocks account for the area in between $1billion and $8
billion).
Many of these companies also pay a quarterly dividend - an extra
bonus to traders and investors alike. Additionally, the share price is usually steady, if not
seasonable (some companies may do most of their sales near Christmas, or
in the summer months).
Sophisticated traders should maintain a majority of their stock portfolio
in large caps - looking for businesses who are able to continually raise
their dividend payouts. A small part, possibly as high as 10%, would be
allocated for penny stocks. This gives a balanced approach for your
portfolio. Should you come across a small cap stock which returns 100%,
it is going to contribute nicely to your all round stock portfolio. On
the other hand, if some small cap shares go lower, your whole stock
portfolio won't experience a significant hit.
small cap vs large cap - the winner is
In the epic battle between small cap vs large cap - the winner is a draw
as you should look to have both in your portfolio.
how to trade penny stocks for dummies
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