What is a Small Cap Stock?
Small cap refers to the market capitalization of stocks of companies with market values less than $2 Billion. Company’s stocks are generally referred to as large cap, mid cap, or small cap.
What is the Difference Between Small, Mid, and Large Cap?
Small cap companies are smaller in size and are generally valued between $300 Million and $2 Billion. Since they are less established than larger companies, they have more room to grow and potential to produce higher returns, but this can also mean more severe effects of volatility in the market.
Mid-cap companies are medium-sized companies valued at $2 to $10 Billion. These companies are more established and may experience less volatility than small cap companies, but also have more room for growth than large cap companies.
A company is classified as large cap when valued at over $10 Billion. Large cap stocks are considered core portfolio investments because they’re the least likely to be volatile with market fluctuations. In turn, there is potentially less opportunity for aggressive growth, but more opportunity for reliability in consistent returns.
What is a Small Cap ETF?
A small cap ETF is an ETF (Exchange Traded Fund) that invests in the market’s smallest valued companies. Investors are typically inclined to invest in these ETFs because they offer a higher potential for growth and returns than mid cap or large cap stocks. ETFs are best suited for investors who are willing to accept a riskier investment in return for potentially higher gains.