Invest In Mid Cap and Small Cap Funds For The Long Term

Invest In Mid Cap and Small Cap Funds For The Long Term

The stock market has been very volatile in the last year. The stock market has been steadily falling down. Many financial advisors have told you not to invest much money in small cap and mid cap mutual funds. Focus on large cap mutual funds they say. Studies have shown that small cap and mid cap mutual funds, have outperformed large cap mutual funds over 3 year, 5 year and even 10 year periods.

What are small cap mutual funds?

Small cap mutual funds invest your money in small cap stocks. Small cap stocks have small market capitalization. Market capitalization is the valuation of a Company, based on the current market price of the share * the total number of outstanding stocks. (Outstanding stock are the number of shares held by the shareholders of the Company). Over the past year, prices of most mid cap and small cap stocks have crashed. Mid cap and small cap mutual funds have fallen in value. Investors have suffered heavy losses and are thinking of exiting mid cap and small cap mutual funds. Investors are rushing to invest in the relatively safer large cap mutual funds.

Is this fear justified?

Many mid cap funds have given compound annual returns of around 21%, whereas many large cap stocks have given returns of just 9% over 3 years. Even over a 10 year period, many small cap and mid cap mutual funds have outperformed large cap mutual funds. If you plan to stay invested for the long term, then you can consider an investment in small cap and mid cap mutual funds.