Investing in stocks is a big key to long-term wealth and prosperity. But you need to know the basics of the stock market to be a good investor.
In the following video, Dan Caplinger, the Motley Fool's director of investment planning, discusses three key facts about the stock market. Dan examines three different ways to categorize stocks and points out some of the advantages and disadvantages of each group of stocks. Specifically, in discussing the historical edge that small-cap stocks have over large caps, he looks at the example of the energy industry and the struggles that oil giants ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) have in keeping their production levels up, even as small up-and-coming exploration and production companies produce huge growth.
Dan goes on to examine the value-versus-growth debate, using the recent struggles of Intuitive Surgical (NASDAQ:ISRG) as a way to highlight the challenges high-growth stocks face when their growth inevitably falters. Finally, Dan talks about international stocks, noting that the long-term performance of the iShares MSCI EAFE ETF (NYSEMKT:EFA) is very close to the domestic SPDR S&P 500 (NYSEMKT:SPY), but that the two often produce different returns year-to-year, providing some diversification.