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 plus
Mid Cap = those worth $2 billion to $10 billion
Small Cap = those worth less than $2 billion
To cap or not
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.