1. You have a company that is valued over $10 Billion in the market
2. You have a company that is valued at over $2 Billion but under $10 Billion in the market
3. You have a company that is valued at anything under $1 Billion
The Keys To Understanding
The value is determined by something called Market Capitalization; this is calculated by multiplying the number of shares that are out in the market multiplied by the current stock price. So when you here Tesla Market Cap is bigger than GM it simply means they are valued more because of their stock price going up.
• Large Cap: considered “safer” investments but offer less upside growth compared to its counterparts.
• Large Cap also usually offers dividends, which is key for income investing
• Mid Cap: This is a mix of growth but safer than picking small cap stocks, these are companies that usually have had success. They usually do not offer dividends
• Small Cap: Usually companies who are new to the market, considered growth companies, and the riskiest out of all the stocks; often Bio Pharmaceutical companies.
Why Do We Care?
• Understanding these characters help you pick a portfolio that suits your risk level
• Quick way of understanding if the company is still growing or consider “reliable”
• You can mix and match a selection large, mid, and small to achieve a diversified portfolio
• Large Cap: IBM, Tesla, Microsoft, Apple
• Mid Cap: Abbot, Pfizer
• Small Cap: Wendys, Ancestry.com, iRobot.
Overall it is important to understand what stocks you are looking at and their characteristics because this determines your risk level, consult with a professional like our partnered advisers to learn more what mix of stocks fit you.