The world of investing can seem intimidating to those who have never done it before. Where do you even begin? How do you invest? Who do you invest in? It’s natural to have a lot of questions.
Some people like the idea of investing in big-name companies that they’ve heard of. After all, companies like Amazon and Apple make a lot of money and continue to grow. It seems logical that investing in them is a sure-fire way to make money for yourself.
The first thing to understand is that there are few if any guarantees in the world of investments. The second thing to understand is that while there are advantages to investing in those large companies, smaller businesses have their own distinct advantages as well.
Let’s take a look at both.
Advantages of Big-Name Investments
As we said, there are no guarantees in the investment world, but large companies that have successfully navigated through industry changes time and again likely won’t fall apart overnight. Many (if not most) of them will steadily grow as they have over the course of their company history.
Investments in large companies are known as large cap stocks. Though it sounds straight forward, large cap investing isn’t as simple as picking the biggest valued company and buying as many stocks as you can. After all, the more expensive the stock is, the fewer shares you’ll be able to buy.
Different companies can offer unique advantages, depending on trends, seasons, new products, and more.
Additionally, some companies and stock-types of large companies can offer stock dividends.
Think of these as bonus payments that investors receive from time-to-time. If you want, you can reinvest these dividends, compounding your investment. Or you can take the money and use it elsewhere, while keeping your stock as is.
These types of investments, as well as investments in large companies as a whole, are generally best for playing the long game.
Advantages of Investing in Small Companies
Though you likely won’t suffer a catastrophic loss from a longstanding company, you’re not likely to see explosive growth either. If your goal is to play the stock market, riding hot trends and then selling for a massive profit, you might want to look at small companies.
Investments into companies with a value of less than $2 billion are called small cap stocks.
Though small companies have fewer resources, and they lack the proven track record of the big names, they also have much more room for growth. Conversely, they’re also much more susceptible to going under.
Small cap investing tends to be a high-risk, high-reward. Traditionally, small cap stock thrives when the economy is coming out of a recession. Smaller companies also tend to benefit more from tax cuts.
Of course, you’re not limited to either really big or really small companies. In the middle, you’ll find medium cap stocks. These offer more stability and safety than small cap, while holding the promise of bigger gains than large cap.
At the very bottom, you also have microcap and nano-cap stocks. These are considered to be the most volatile, though they can turn out high earnings.
Diversifying Your Portfolio
The best way to succeed is by keeping your investment portfolio diversified. Counterbalance riskier moves with safer investments, protecting yourself from losing it all on one bad investment. Done correctly, you can make respectable earnings on your investments without exposing yourself to financial ruin.
Of course, the best way to keep your money organized and diversified is with a professional financial advisor by your side. The team at KB&P is highly experienced in financial advising and investment management in Springfield, Ohio and beyond.
Contact us today and make the most out of your money.