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Put a Cap on It
By MP Dunleavey Thursday July 15, 2010
Investing pros have a number of criteria they use when choosing their investments. An important one to know is the difference between large-cap, mid-cap and small-cap companies. Cap means capitalization
The secrets of the investing world can be yours, once you make like Matt Damon and crack all the dang code. "Cap" refers to market capitalization. Or, in people talk, what a company is worth, i.e. the market value of its outstanding shares.
So, according to Investopedia:
Large Cap = companies with a value of $10 billion plusTo cap or not
Mid Cap = those worth $2 billion to $10 billion
Small Cap = those worth less than $2 billion
Investing, as we've discussed, is about balancing risk and return.
When you buy a mutual fund for your retirement or investment account, you need to evaluate not only whether it's comprised primarily of, say, large- or small-cap companies, but whether the fund is a growth fund (more risky, but potentially higher returns); a value fund (less risk, but potentially lower returns); a blend fund (a mix of asset classes).
Here's the grid that Morningstar uses to pinpoint where mutual funds fall. MYIFX is an example of a large-cap growth fund.
Pop quiz. Plug the ticker symbol of a fund you own into Google finance. Tell us about it.
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Written by McKenna, July 15, 2010
When I quit my job last year, I rolled over my 401K savings to eTrade. I love it! (I'm also aggressively putting savings away into an interest-earning savings account there.) I put 2/3 of the money into an account that eTrade manages for me, which has been doing GREAT, and with the other 3rd I bought some stock in GMCR, HAIN and HANS. HAIN is more of a moral move than anything, as I really believe in that company and their products. Anyway, I am extremely pleased at how my overall worth has increased by 25% in just a year's time. I'm probably not doing everything I even could to optimize things.
Written by Kenia, July 15, 2010
I never knew about the Morningstar Style Box. Other than my 401K (which has general asset classes to choose from, and I can't see the specific funds being held), I'm not investing yet because I'm still working on an emergency fund (1/3 of the way there!). But now I'm aware of this for when I do begin to invest! Thanks!
Written by Mary Alice, July 15, 2010
I have purchased a variety of mutual funds over the years. When I was first starting in my career, my boyfriend-soon-to-be-husband introduced me to a friend of his who was a financial planner. The guy took me out to dinner and after a bottle of wine I reluctantly purchased Putnam New Opportunities and even consented to having $100/month direct deposited out of my paycheck every month. I liked the fund because the prospectus had a French Horn on the cover. (Great investing strategy!) Turned out to be one of the best intoxicated decisions I ever made. That fund has grown over the years and has been a nice disciplined investment...especially with the direct deposit. Credit card debt came and went and came back again, but the fund continued to grow. Later, I decided I needed a Roth IRA so I purchased WellsFargo Specialized Technology and made the maximum yearly contributions. Since then, I went off into business on my own and had to open a SEP account for tax purposes. I trust a professional to manage my SEP but I keep my two mutual funds (Putnam and WellsFargo) for sentimental reasons. For kicks, I ran them both through the Google Financial chart that you mentioned. Both are large CAP and what surprised me the most was how many holdings were similiar! Time to get some professional advice on rebalancing and possibly rolling over those mutual funds. Thanks for bringing the Google Financial site to my attention!
