Stock Market Misbeliefs: Watch Small Capitalization Stocks

3 Common Investment Myths in the Stock Market

When investing in the stock market, some misconceptions can lead to significant losses. In this article, we will address three common myths that often occupy investors' minds. We will particularly shed light on 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 provided a higher return than many large stocks at various times. 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 often have higher volatility, but this does not necessarily mean they carry more risk. By combining these stocks with a portfolio of large-cap stocks, you can reduce your risk profile. MSCI data shows that having a portfolio with 85% large and 15% small-cap stocks provides the same level of risk as solely investing in large stocks.

Myth 3: Investing in Small Stocks Is Dangerous

Small-cap stocks have a large potential that often goes unnoticed. Recent data indicates that as investors have turned to small stocks, these stocks have gained value and can compete with large stocks. This presents a way to diversify your investment strategy and increase your long-term returns. Small-cap stocks hold significant return potential for investors seeking quality and undervalued opportunities.

Conclusion

Leveraging the potential of small-cap stocks can create a robust investment strategy. History has demonstrated how these investments have been successful in the past.