What is market cap? defined and explained
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Market capitalization, or market cap, is the total value of a company’s shares of stock. Market cap is calculated by multiplying the number of stock shares outstanding by the current tóm tắt price. Shares outstanding includes all shares — those available to the public as well as restricted shares available to and held by specific groups.
If a company has issued 10 million shares and its tóm tắt price is $100, its market cap is $1 billion.
Market cap allows investors to kích cỡ up a company based on how valuable the public perceives it lớn be. The higher the value, the "bigger" the company. The form size and value of a company can inform the cấp độ of risk you might expect when investing in its stock, as well as how much your investment might return over time.
Categorizing companies this way helps investors create a balanced portfolio that's optimized for long-term growth.
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Below is a deeper dive into the major market-cap segments, but it’s important lớn remember the threshold isn’t clearly defined; the higher-value components of one segment can set in with the lower-value segments of the next. Indexes and fund managers may have different definitions of market cap or use wider or narrower criteria. A company’s mô tả price can also fluctuate enough khổng lồ move it into a higher or lower market-cap category.
Large-cap companies tend to be those that are well-established & profitable, và are often household names, including:
Because they’re so established, large-cap companies are generally more stable. They’re reliable in terms of dividend payouts and typically don’t grab headlines the way some flashier stocks might. But this understated nature is actually what makes them attractive lớn investors, according to lớn Serina Shyu, a certified financial planner with Delta Community Retirement & Investment Services in Atlanta.
"Large-cap stocks are pretty boring, & an investor wants boring in their portfolio," Shyu says. "When things go crazy in the markets, large-cap stock prices might go up or down accordingly, but not as much compared to mid-cap or small-cap stocks."
The annualized 10-year total return of the S&P 100 index — an index of the 100 largest U.S. Companies by market cap, including all large-cap stocks — is currently about 14%.
There are several funds that track large-cap stocks, including iShares S&P 100 ETF, Vanguard Value ETF and Schwab U.S. Large-Cap Value ETF. Many brokerages offer tools lớn screen and discover more funds that track companies with specific market capitalizations.
While large-cap companies have already seen rapid growth, mid-cap companies are often in the midst of it. Và with that growth comes the opportunity for higher, faster gains but also the potential for more drastic downturns. Mid-cap companies are often household names, too, but typically aren’t national — or international — behemoths like the companies above. A few mid-cap stocks include:
The annualized 10-year total return of the S&P MidCap 400 — an index that tracks 400 mid-cap companies — is currently about 11%, và there are several funds that seek to mirror similar returns, such as SPDR Portfolio S&P 400 Mid-Cap ETF & Vanguard S&P Mid-Cap 400 ETF.
Small-cap stocks are often young companies with the potential for high growth. These stocks may have the possibility of high returns (that small-cap could indeed grow lớn be a mid- or large-cap), but they also come with the possibility of significant losses.
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Small-cap companies typically have only a few revenue streams, depend on overall U.S. Economic growth and can feel the effects of taxes và regulations more profoundly than established businesses. If large-caps are the big cruise liners that can withstand the stormiest seas, small-caps are the sailboats that can be rocked by a single wave.
Still, the opportunity for growth they present can benefit an investor’s portfolio, provided the potential downside is buoyed by the relative stability of large-cap stocks. Examples of small-cap stocks include:
