Small, Large & Mid Cap Stocks (+Importance of Diversification)


Stocks and Bonds have Many Flavors

You’ll see each of the different types of Stocks and Bonds; and how they differ from each other.

STOCKS BONDS
Large-Cap – Big companies with a market capitalization (“market cap,” which is defined as outstanding shares times the stock price) over $10 billion Government – An ultra-safe investment that’s backed by the government. In exchange for their low risk, government bonds tend to return less than stocks.
Mid-Cap – Midsized companies with a market cap between $1 billion and $5 billion Corporate – A bond issued by a corporation. These tend to be riskier than government bonds but safer than stocks.
Small-Cap – Smaller companies with a market cap less than $1 billion Short-Term – Bonds with terms of usually less than three years
International investments – Stocks from companies in other countries, including emerging markets (like China and India) and developed markets (like the United Kingdom and Germany). Americans may sometimes buy these directly, but may have to buy them through funds. Long-Term
These bonds tend to mature in ten or more years and, accordingly, offer higher yields than shorter-term bonds.
Growth – Stocks whose value may grow higher than other stocks, or even the market as a whole Municipal – Also known as “munis,” these are bonds issued by local governments
value – Stocks that seem bargain priced (ie, cheaper than they should be) Inflation-Protected – Treasury inflation-protected securities, or TIPS, are ultra-safe investments that protect against inflation.

Note that because of their complicated structure, REITs, “real estate investment trusts”—which are types of investments that let you invest in real estate through a single ticker symbol, just like a stock—don’t neatly fall into any of these categories .

The Importance of Being Diversified

Now that we know the basics of the asset classes (stocks, bonds, and cash) at the bottom of the pyramid, let’s…



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