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What defines large-, mid- and small-cap stocks?

According to their size, all companies fall into one of three main categories: large-, mid- and small-capitalization (v-cap) stocks. The descriptions are based on the total stock market value of the company that underlies the stock and which is commonly referred to as the market capitalization. When it comes to market capitalization, all stocks are not created equal.

The three categories are important to understand because they each have a particular investment personality and risk/reward characteristics. Prudent investors take these traits into consideration when choosing an appropriate stock that fits with their own personality and investment goals. Here is a look at some common features within the three categories:

Large-cap stocks

Small-cap stocks

Mid-cap stocks

Note

The size of the three categories is not carved in stone. Capitalization parameters for the three categories may vary among investment managers and are just a guideline. This guideline however, can be a useful tool in judging the suitability of an investment for your portfolio. You and/or your financial advisor can likely find stocks within the three categories that fit your investment personality and objectives.