The 2020 pandemic hit many companies hard, while other companies took it as a chance to grow, seemingly unaffected by the state of the world around them. NVIDIA (NASDAQ:NVDA) came out as one of those thriving businesses and achieved gains of 122% in 2020. The company’s graphics processing units (GPUs) were present and needed for trends that accelerated exponentially due to the pandemic, boost...
If you have already been investing over a considerate amount of time, you probably already have ownership over some large-cap stocks. You might be asking yourself, what are large-cap stocks?
To give you some background, the summed-up value of all of any business’s stocks is known as the market-cap. Moreover, based on the size of its market-cap, a given company can fall into any of the following categories:
- If it is less than $300 million, it is considered a micro-cap company.
- If it stands between $300 million and $2 billion, it is considered a small-cap company.
- If it stands between $2 billion and $10 billion, it is considered a mid-cap company.
- If it stands between $10 billion and $200 billion, it is considered a large-cap company.
- If it is bigger than $200 billion, then it is considered a mega-cap company.
A large-cap stock usually represents a company that has already stood out the test of time and has proven itself as one of the very best and most dominant from the market they belong in.
To give you a glimpse into the world of large-cap stocks, companies like Walt Disney, Coca-Cola and Amazon are among the first that come to mind.
Investing in large-cap stocks
Investors who usually opt for small-cap stocks tend to do so because they typically provide way more meaningful amounts of profit in the long-run. However, it comes with considerable risk since they tend to be volatile.
On the other hand, investors who are willing to take the time to understand large-cap stocks can still make a reliable profit in return while still maintaining themselves at a safe spot regarding their investment.
Among the various things one must understand regarding large-cap stocks, you should prioritize to take the following into account:
- If your main focus is still targeted towards achieving high growth with more significant returns, you might still be doing better by investing in small-cap stocks. While reliable, large-cap stocks always come with moderate growth.
- It is reasonably common for large-cap companies to pay a percentage of their earnings to their stockholders (known as dividends). Likewise, they tend to be highly stable businesses, meaning that their track records are probably desirable.
- As it is with any other company, large-cap stock companies can still face low points in the market. But it is common for them to consistently deliver a steady performance regardless of their actual place within the market.
Finding large-cap stocks to invest in
As long as the company you have set your eyes on belongs to the large-cap stock category, you have nothing to worry about its performance.
Aspects such as its competitive strengths, reach, leadership and track records will be more than ideal and easy to appreciate.
However, what you should be looking for as a potential investor is the following:
- Earnings growth
The price of any given company’s stocks tends to reflect their earnings during a specific time period. If their earnings increase, so will their stock prices.
However, keep in mind that a company might also achieve earnings growth by becoming more efficient over time, not only for increased sales.
Nevertheless, any company with a proper track record of steady earnings growth, either by an increase in sales or efficiency, is a great investment choice.
A company that pays out dividends to shareholders can also be an excellent choice for investing.
However, there’s a secret to making better profits out of it: reinvest your dividend.
Instead of keeping it, try and buy out more shares from the same company, increasing your wealth in the long-run.
However, be careful since it is common for companies to reduce their dividends when facing low points in the market. To better accommodate yourself to that fact, try not to rely on your dividends too much.
Large-cap stocks to invest in
Here are some examples for you to make the first investment in large-cap stocks. These companies have shown over time, and with initiative, their potential for steady growth and steady dividends for their shareholders.
- Procter & Gamble
Nonetheless, if your style of investing in stocks isn’t on doing it individually, you can also go for funds or ETF that track large-cap companies, such as the following:
- Vanguard S&P 500 ETF
- Fidelity Contrafund
Should you invest in large-cap stocks?
Suppose you are comfortable with the idea of moderate profit but with steady performance, against the likes of significant wealth but with equally substantial volatility. In that case, large-cap stocks are very likely the best option for your portfolio.
Worth taking into consideration, you can also diversify your portfolio by including large-cap stocks and small-cap stocks. There’s nothing wrong with wanting a little of both worlds to achieve your investment goals.
Still, regardless of how trusting a specific large-cap stock is to the public eye, never underestimate the need to do proper research before sealing the deal with them. You can never have too much research when it comes to handling your money.