Small-cap stocks are those of public companies that are $300 million to $2 billion in market capitalization, commonly called market cap—the share price times the number of outstanding shares.
Before you say, “Sign me up,” wait for the rest of the story. There’s no guarantee that outrageous growth will be the reward for investment. If that were the case, the S&P list of the biggest public companies would include thousands, not 500. If you chose a few small caps over the short run, you might lose your shirt.
There is no guarantee that small-caps outperform large-caps at every time. But sometimes they will, like the period from 2000 to 2009, often called the Lost decade. Large-caps saw a -.9% compound return over the period. Small-caps were up 6.3% on average. There are also cash accounts versus margin accounts. Cash accounts require that you have the money to buy shares. Margin accounts allow you to borrow to purchase. Given the higher volatility of small-cap companies, sticking with cash accounts is probably the best move for most people.
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