"Stock Market Misbeliefs: Keep an Eye on Small Capital Stocks"

3 Common Investment Misconceptions in the Stock Market

Some misconceptions you might encounter when investing in the stock market can lead to significant losses. In this article, we will focus on three common myths that trouble many investors. 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 Carry More Risk

It is true that small-cap stocks tend to have higher volatility, but this does not always mean they carry more risk. You can reduce your risk profile by combining these stocks with large-cap stocks in a portfolio. MSCI data shows that holding 85% large-cap and 15% small-cap stocks in a portfolio provides the same level of risk as investing solely in large-cap stocks.

Myth 3: Investing in Small Stocks is Dangerous

Small-cap stocks possess a major potential that is often overlooked. Recent data indicates that as investors gravitate towards small stocks, these stocks have been appreciating in value and can compete against large stocks. This presents a way to diversify your investment strategy and increase your long-term returns. Small-cap stocks hold serious return potential for investors looking for quality and undervalued opportunities.

Conclusion

Taking advantage of the potential of small-cap stocks can create a robust investment strategy. History proves how successful these investments have been in the past.