"Stock Market Misbeliefs: Monitor Small-Cap Stocks"

3 Common Investment Myths in the Stock Market

Some misconceptions you may encounter while investing in the stock market can lead to significant losses. In this article, we will focus on three common myths that often plague investors' minds. We will especially clarify the performance differences between large-cap and small-cap stocks.

Myth 1: Large-Cap Stocks Always Perform Better

A common misconception in the markets is that large-cap stocks always outperform small-cap stocks. However, since 2000, the Russell 2000 index, which tracks small-cap stocks in the U.S., has often provided higher returns than large-cap stocks. Additionally, the S&P 600 index offers a more reliable benchmark by including only profitable small companies.

Myth 2: Small Stocks Are Risky

It is true that small-cap stocks tend to have higher volatility, but this does not necessarily mean they carry more risk. By combining these stocks with those of large-cap companies in your portfolio, you can reduce your overall risk profile. MSCI data shows that maintaining a portfolio with 85% large and 15% small-cap stocks achieves the same risk level as investing only in large-cap stocks.

Myth 3: Investing in Small Stocks Is Dangerous

Small-cap stocks possess a significant untapped potential. Recent data suggests that as investors have increasingly turned to small stocks, their values have risen and they have begun to compete with large stocks. This presents an opportunity to diversify your investment strategy and enhance long-term returns. Small-cap stocks hold serious return potential for investors looking for quality and undervalued opportunities.

Conclusion

Capitalizing on the potential of small-cap stocks can form a strong investment strategy. History has proven how these investments have succeeded in the past.