While doing our internet rounds this morning, we stumbled across an interesting article from The Wall Street Journal. It hypothesizes that although shares in small companies (small-cap stocks) have been making investors a lot of money recently, the trend is expected to end soon when the stocks become less valuable.
As a reminder, a small-cap stock is a share in a small company, just like a mid-cap stock is a share in a mid-size company, and a large-cap stock is a share in a large company.
When investing in the stock market, it’s a good plan to diversify your assets—to spread out your money both among asset categories (stocks, bonds, cash) and within them. Distributing your money among different sized companies is an effective way to diversify within your stock investments and reduce risk by making sure that if one type of company is set for a fall (like our small-caps), the hit won’t deplete your finances.
Even if we do have money invested in small-cap stocks and are therefore less-than-thrilled to hear the WSJ’s prognosis, we’re not touching that money! Just because the stocks might go through a rough period doesn’t mean that we should panic. Stock investments are the most profitable when left in the market for five or more years, and we need to have faith that the market will continue to do what it does best: ebb and flow.
Tackle ‘Small-Cap Stock Trap’ yourself at WSJ.com.
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