Small cap stocks can be excellent for a diversified portfolio, offering plenty of potential future growth. These stocks can also allow individual investors to get in before the largest mutual funds, because there are specific rules that restrict large funds from overinvesting in them.
If you’ve been trying to expand your portfolio and make it more robust in 2018, then you may have invested in some small cap stocks yourself. If you did invest, or if you’ve simply been watching the market, then you will know that the small caps have been performing extremely well.
Small cap stock indexes including the Russel 2000 Index and the S&P 600, both grew by around 1.5% by the end of trading on Wednesday. If we look at the S&P Small Cap 600 Index over the past year, growth has been an impressive 22.39%. Even if only considering 2018 alone (including the early months of high volatility), the index is up by 8.78%
Gains in small cap stocks are widespread, with more than half of all sectors increasing in value this year. This is particularly impressive when compared to the S&P 500 which only gained 12.95% in the past year, and just 1.89% for all of 2018.
It’s quite clear what’s happening here: small market capitalization stocks are growing at a faster rate, and growth is being sustained. If you’ve been trading in these stocks throughout 2018, then it’s likely that you’ve made some good profit. If you haven’t yet invested in small cap stocks, then it’s probably time that you do.
Small Cap Stocks: Diversification is Still Key
With such good performance in small cap stocks, you might be tempted to start leaning your portfolio heavily towards companies tracked by the Russel 2000 and S&P 600. While some well-researched investments would be wise, it doesn’t mean that you should abandon the large capitalization stocks altogether.
Some areas of the large cap market have been strong, which can be seen with the NASDAQ index growing 8.10% in 2018. Tech stocks and Energy related stocks have been particularly strong.
Whether you’re aiming for long term dividends or short term profits from trading, diversification is always the best way to meet your financial goals. For now, the small cap stocks are highly appealing, and there are plenty of winners spread throughout the sectors.
Apply your investment knowledge to these stocks, research the companies that interest you, and invest slowly as you get a feel for the market. Analysts believe there’s still room for growth with small market capitalization companies, so now would be a good time to invest as we move into the halfway point of 2018.
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