Large-Cap / Small-Cap
Definition
Market capitalization categories. Large-cap: $10+ billion (Apple, Microsoft). Mid-cap: $2-10 billion. Small-cap: $300M-2B. Mega-cap: $200B+ (Apple, Saudi Aramco). Cap determines size and typically correlates with risk and volatility.
Why It Matters
Cap size affects risk and returns. Large-caps are stable, small-caps more volatile but faster growing. A diversified portfolio mixes sizes. Young investors can handle small-cap volatility. Retirees typically prefer large-cap stability.
Example
Large-cap stock (Apple) $3T market cap: stable, 8-10% typical returns, 10% bad years. Small-cap biotech $500M cap: might return 30% or lose 40%. Over 30 years, small-cap volatility is worth the higher growth. Over 5 years, it's too risky.