What is Market Cap?
Market capitalization equals the total value of all outstanding shares. It is calculated by multiplying the stock price by the number of shares outstanding.
Formula: Market Cap = Stock Price x Shares Outstanding
Market Cap Categories
- Mega-Cap - $200+ billion (Apple, Microsoft, Amazon)
- Large-Cap - $10-200 billion (Most S&P 500 companies)
- Mid-Cap - $2-10 billion
- Small-Cap - $250 million - $2 billion
- Micro-Cap - Under $250 million
Risk and Return by Size
Historically, smaller companies have higher returns but also higher volatility:
- Large-caps - More stable, lower growth potential
- Small-caps - More volatile, higher growth potential
- Mid-caps - Balance of stability and growth
Portfolio Allocation
A diversified portfolio typically includes exposure across market cap sizes. Index funds make this easy to achieve with a single investment.