What are common advantages of investing in large cap stocks?

Large-cap stocks tend to be companies that are established in their markets with long-term histories. Some feel this makes them “safer” to invest in.

Larger company stocks also often pay dividends, allowing you to capture some of the return of your investment, which some investors view as a benefit. Rather than keeping their profits and investing it back into themselves, they may not benefit as much from using the cash, so they distribute it to owners.

Smaller companies have benefits as well. They can add diversification benefits to traditional portfolios which tend to be market-capitalization weighted (they invest more in large-cap stocks to better represent their share in the market).

Smaller companies have more room to grow; an investment that a small company makes may double their revenue. Meanwhile, that same investment by a larger company may not make a noticeable difference.

Overall, you should invest in a mix of stocks that represents your time horizon and tolerance for risk, including both small and large company stocks across the globe.

Robert Schmansky
Clear Financial Advisors, LLC
Livonia, MI

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