How to differentiate between large-cap, mid-cap, and small-cap stocks
In addition to market value, there are some other differences between large caps, mid caps, and small caps that investors should be aware of.
Of the three categories, large caps tend to be the most stable over time. These stocks are represented by the S&P 500. They tend to be well-capitalized, are profitable, have easy access to debt, and are industry leaders.
Small caps, on the other hand, tend to be the most volatile of these three categories. Small caps are often under-the-radar stocks that get less attention than large caps so it's easier to find a diamond in the rough. Additionally, small caps are more likely to be unprofitable and carry proportionately large debt balances. Therefore, small caps, represented by the Russell 2000, tend to fall further in market pullbacks.
Mid-caps offer a middle road between large caps and small caps. There's more volatility and upside potential than large caps, but also risk.
It's worth remembering that each of these categories contains a range of stock market sectors, so you'll want to consider the industry you're investing in as well as the size of the stock.