Middle of the Road
Mid cap stocks offer a mix of the potential growth of a small
cap and some of the stability of a large cap, which could be
a welcomed addition to your portfolio.
In the search for the proverbial “Goldilocks” choice of the investment world, mid-cap stocks may be about
as close as some investors get when looking at market capitalization. And while they may not be “just
right” for everyone, mid-cap stocks certainly offer a unique, balanced mix of qualities from large and
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. 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. So what makes mid
caps so middle of the road?
Large caps are generally more glamorous to some experts because they are
perceived to be the safest and most reliable. The prevailing assumption is
blue chip stocks are strong and steady. But as Enron and others have shown,
that isn’t always the case. Risk exists throughout the market, and in some
cases, with reduced risk, comes reduced growth.
Meanwhile, some small caps can be a bit too bumpy of a ride for many
investors. Smaller, less-established companies mean there may be a bigger
chance for growth but also more volatility. Many investors can’t handle the ups
and downs that small caps offer. Small caps are often ignored by many
analysts and thus, don’t receive as much attention. Meanwhile, many large
cap stocks are frequently highlighted. Mid caps, once again, fall into the
middle child category.
Mid cap stocks have become a popular investment of late because of the
attractive qualities that many investors see in them. Frequently the companies
are primed for potential growth, at the same time they’ve already gone through
some of the growing pains which small-cap stocks have yet to experience.
Experts say that by the time a company has ventured through life as a small
cap, they’re often better prepared to handle the market’s woes. They’ve also
usually had a chance to put quality management in place, and better refine
their product and their message. Thus, room for growth, but with less growing
The size of the market capitalization you choose to invest in, has a great deal to do with your current
financial situation and the amount of risk you’re willing to tolerate. Meeting with a financial professional
to assess your needs and goals, is one of the first steps towards establishing a plan for the future. While
no one investment is perfect for everyone, certain investments do fit well for people in particular
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