The Potential Risks & Rewards Of Small-Cap Stocks

Price-Earnings ratios as a predictor of twenty-year returns. From Irrational Exuberance, 2d ed. source (Photo credit: Wikipedia)

Blue chip stocks like Amazon, Apple and Google usually get the lion's share of attention from investors - after all, they have proven their worth over time and are unlikely to tank overnight. However, a lot of savvy investors choose to diversify away from those perpetual darlings of the stock market and instead invest in small-cap stocks.

Small cap stocks can be and have been subject to certain levels of risk. They can experience violent price swings and more than once they have fallen victim to fraudulent activity. However, they can also have a very attractive risk/reward ratio.

As a general rule, small-cap stocks come from companies that are relatively new to the public eye. While companies like Apple have a market cap that is quickly approaching $1 trillion, small cap stocks usually max out at now more than a few billion dollars. The Russel 2000 Index, for example, is the most commonly-used gauge for small cap stocks and it currently lists companies with market caps that range between about $144 million and $3.4 billion.

Small cap stocks are unique because they tend to rely on U.S. economic growth to be successful. They are usually more closely tied to the U.S. economy, including U.S. taxes and regulations, because they haven't yet reached the point of being internationally sought after stocks. This means they can be risky, but it also provides investors with the opportunity to see exponential gains in a short amount of time. The Russel 2000 Index, for example, rose 14% between November 2016 and January 2017 due to the political climate. For this reason a lot of investors see the value in diversifying their holdings and buying individual small cap stocks or small cap mutual funds.

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Stock Carnival Ecstasy - July 24, 2012

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Welcome to the July 24, 2012 edition of Stock Carnival Ecstasy.In this edition we start with the Wells Fargo Advantage Growth (SGROX), a 5 star Bronze rated mutual fund by Morning Star with $10.4 billion in assets under management, in an article by Habeeb. Carlos Sera discusses Modern Portfolio Theory. Greg Field writes about the Volcker Rule which has a significant impact on the financial world and will change the way people invest. And finally we have the Archivist on using Covered Calls for regular returns. Hope you enjoy the articles, bookmark, share, tweet, like on Facebook and come back soon.

Alex Fennings presents How do you Buy Stocks Online? Learn all there is to know! | The Forex Base posted at The Forex Base, saying, "Learn all the information you need to effectively trade stock online and turn a profit"

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Dr. Dean presents Dementia And Your Money posted at Dr. Dean's TheMillionaireNurse.com Blog, saying, "Does your financial portfolio guard against the risk of decreased mental capacity as you age? Mental decline can happen even if you take steps to avoid it."

stocks

Habeeb presents Wells Fargo Advantage Growth fund (SGROX) posted at Dividend Paying Mutual Funds, saying, "Wells Fargo Advantage Growth (SGROX) is a 5 star Bronze rated mutual fund by Morning Star with $10.4 billion in assets under management. The fund seeks long term capital growth by investing primarily in large cap companies with robust earnings and intrinsic value that is higher than what the market assigns it. The fund’s team conducts a bottom-up analysis on each company’s market capitalization to find the best investment opportunities in the market. If you had invested $10,000 in this fund in July 1st, 2002, your portfolio would be worth $26,354 as of July 1st, 2012"

Aaron presents A 15 Year History of Wall Street – Part 1 posted at Outsider Trading, saying, "bailout, Business, Cartoon, Economics, Finance, Housing Bubble, Investing, Stock Market, Wall Street"

Habeeb presents Vanguard Dividend Growth (VDIGX) Mutual Fund posted at Dividend Paying Mutual Funds, saying, "Vanguard Dividend Growth (VDIGX) has $10.5 billion in assets under management and is rated 5 star by Morning Star. Just as the name implies, Vanguard Dividend Growth invests in large cap high-quality companies that have the ability and commitment to increase their dividends over time. Almost 91% of the fund’s assets are fully invested in US equities so one of the risks mentioned on the prospectus is this full exposure to equities. If you had invested $10,000 in this fund on July 18th, 2002, your portfolio would be worth $21,674 including re-invested dividends and capital gains."

The Forex Base presents How do you Buy Stocks Online? Learn all there is to know! | The Forex Base posted at The Forex Base, saying, "Learning about online stock trading can be laborious: Our free website provides lots of information for you to get started and to make you the learning process as easy as possible"

tips

Habeeb presents Yacktman Mutual Fund (YACKX) posted at Dividend Paying Mutual Funds, saying, "The Yacktman fund has $7.4 billion in assets under management and is a Gold 5 star rated fund by Morning Star. 86% of the fund’s assets are invested in large cap blue chip American companies and 12% is held in cash to take advantage of market buying opportunities. If you had invested $10,000 in this fund in 06/24/2002, your portfolio would be worth $26,921 as of 06/24/2012."

Carlos Sera presents An Alto Mar Tale posted at Financial Tales, saying, "As I have said countless times, Modern Portfolio Theory and standard deviation treat risk as though a person would be equally happy going from poverty to wealth as from wealth to poverty."

Theresa Torres presents Four Ways Entrepreneurs Can Use Loyal Customers to Bring in New Customers posted at Entrepreneurship in a Box, saying, "Loyal customers naturally bring in new customers all on their own in the form of family members and friends. But if you want to specifically make it happen, here are four ways you can focus on."

tutorial

Greg Field presents The Volcker Rule Explained posted at NerdWallet Blog - Credit Card Watch, saying, "Here is a very informative and concise break-down of the Volcker Rule which has a significant impact on the financial world and will change the way people invest. Enjoy!"

The Archivist presents Using Covered Calls to Generate Regular Returns | The Market Archive posted at The Market Archive, saying, "If you have your wealth in very safe stocks that appreciate exceptionally slowly, then writing covered calls can be a great way to skim some profit while you wait. Another bonus if you use a conservative dividend investment strategy is that you can write covered calls and still collect your dividends, and get an extra cash payment."

That concludes this edition. Submit your blog article to the next edition of stock carnival ecstasy using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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Stock Carnival Ecstasy - December 30, 2010

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Welcome to the December 30, 2010 edition of Stock Carnival Ecstasy. In this edition we have 25 articles including one from Mike Piper on diversifying your investments within Brokerage Firms. David de Souza takes a look at Christmas and what it means for your Tax Bill. We have a comparison of IRA plans based on Contribution Limits from Michael. And finally Steve gives us the Top ETFs during the past Month. Hope you enjoy, bookmark, share, and return for the next edition.

BackTaxesHelp.com presents Texas Hunts Amazon for Sales Taxes posted at Back Taxes Help.

Francis Thomas presents Top 50 Industrial Engineering Blogs posted at Master of Engineering, saying, "The field of industrial engineering is vast and dynamic. Since it's constantly changing, it can be a challenge to keep up with all the latest information. Luckily, these blogs can help you stay current."

other

Jeff Weber presents Savings with a 0% Balance Transfer for 24 Months posted at Smart Balance Transfers, saying, "An examination of how much can be saved by consumers with various interest rates on a balance transfer that lasts 24 months. Thanks for the inclusion."

Mike Piper presents Should I Diversify Among Brokerage Firms? posted at The Oblivious Investor, saying, "Is it OK to use just one brokerage firm, or does that expose you to unnecessary risk?"

Tim Rakeman presents How To Be Frugal: Grow a Garden to Save Money posted at All Things Frugal, saying, "When it comes to saving money on groceries, unfortunately that usually means eating a lot of processed crap. Anyone who has been in a grocery store knows the cost of a calorie is a lot cheaper in the form of a frozen pizza than it is in an apple."

David de Souza presents Three Ways Christmas Could Affect Your Tax Bill posted at UK Tax Blog, saying, "Guide to three ways that Christmas can impact on the amount of tax that you pay"

Michael Pruser presents You Have Many Choices When it Comes to CD’s posted at The Dough Roller, saying, "When it comes to saving in CD's, you have more options than you might think."

Michael presents Citi® Platinum Select® Card 24 Month 0% Balance Transfer posted at Consumerism Commentary, saying, "The Citi Platinum Select has offered a 2-year interest free balance transfer."

Michael presents Traditional and Roth IRA Contribution Limits posted at Consumerism Commentary, saying, "When filing your taxes this year, don't forget to count the money you've deposited into your IRA!"

Steve Smith presents The Best Forex Advice posted at Forex Trading System Central, saying, "Investing in currency requires knowing the underlying reason for a currency move."

Judy Blackburn presents Advantages And Disadvantages Of Same Day Cash Loans posted at Debt Consolidation, saying, "There are a number of advantages and disadvantages to taking out a payday loan."

stocks

Lee presents Oil Stocks Exposed to Kurdistan posted at Earnings View, saying, "My blog focuses on immediate and in depth analysis of stocks earnings."

Steve presents Top ETFs during the past Month posted at FastSwings, saying, "The top ETFs from the past 30 days can be a nice short term trade."

Demitrios Kalos presents Netflix CEO goes long posted at Sigma Swan.

ruchir khare presents INVESTRATIONAL; Stock Basics posted at INVESTRATIONAL, saying, "A complete guide to understand basics of stock investments"

Christine Siebels presents Stock Trade World | stocktradeworld.com posted at stocktradeworld.com.

freefrombroke presents ShareBuilder $50 New Account Bonus and Free Trades posted at Free From Broke, saying, "ShareBuilder, the online brokerage, has a $50 bonus offer as well as codes for free trades available."

Patty Pedersen presents Fidelity Mutual Funds: Best, Worst, and 2011 Forecast posted at AlphaProfit MoneyMatters - Investing Blog, saying, "Fidelity Select Automotive (FSAVX) appears set to take honors for being the top performing Fidelity fund in 2010. This article provides insights on Fidelity funds that are likely to do well in 2011."

Patty Pedersen presents Contrarian Investing: Two Top Stocks for Contrarian Investors posted at AlphaProfit MoneyMatters - Investing Blog, saying, "This article brings out the strong points for investing in two out-of-favor groups, medical devices and natural gas. The article also brings forth the best ways to play these investing themes."

tips

Tommy John presents How to Effectively Settle Your Tax Debt | 2010 Taxes posted at 2010Taxes, saying, "Daily life can be moderately simpler if we do not have to be anxious with stuff such as settling tax responsibility."

Housing Reporter presents Jim Cramer Backs Off Of Real Estate posted at Tallahassee Real Estate Blog, saying, "Jim Cramer backed off his prediction of a 2012 housing recovery today. He said his prediction was based upon new housing starts rate less than 350,000 a yr. Today housing announced new starts are at a rate of 550,000/yr. “This will wreck the comeback in housing and prices will continue to drop, we do not need new houses!”"

MoneyNing presents Are You Maxing Out Your 401(k) Account? Should You? posted at Money Ning, saying, "Is 401k the answer to all your retirement needs?"

Jackson presents Ways to Settle IRS Debt posted at 2009 Tax, saying, "Being unable to pay your back tax debt can allow the IRS to forgive the debt."

Tommy John presents What to Know About Roth IRA Rules | 2010 Taxes posted at 2010Taxes, saying, "Knowing all the rules of IRA investing can provide the most benefit."

Tommy John presents Green Tax Deductions | 2010 Taxes posted at 2010Taxes, saying, "Purchasing green remodeling products can help in securing tax deductions."

That concludes this edition. Submit your blog article to the next edition of stock carnival ecstasy using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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