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Investing in Large Cap Stocks

Investing in Large Cap Stocks

Investing in large cap stocks is a smart thing to do for the proper diversification of your stock portfolio. Harry S. Dent, Jr., an economist, stated that "The best time to buy large cap stocks is at the beginning of a growth boom. The race for market leadership favors large companies." You should invest in large cap stocks for two reasons. The first reason is because they are more stable stocks. Their revenue and profit will not be as volatile as the small cap stocks. The second reason is that it is a smart thing to do if you feel that the economy is entering a growth period.

Large cap stocks, by definition are those stocks with market capitalization above five billion dollars. In order for a company to reach this pinnacle, they will have to have been around for a long time, and have shown the ability to weather a number of economic cycles. They have shown by this stability the reason that an investor should have them in their portfolio. Placing a portion of your investment in large cap stocks will also help with your asset allocation. They help to stabilize your investment.

On December 22, 2009 an article by the Fidelity Management & Research company stated their expected outlook for the market, and they discussed which asset classes an investor should have their money in. They indicated that "at this point in a recovery period that performance patterns among market-cap sizes have typically become less distinguishable. As a result, owning some exposure to all market cap sizes remains an effective way to diversify the equity allocation within a portfolio."

In relation to large cap stocks, they indicated that with the large cap company ability to raise capital globally, they are positioned better to take advantage of opportunities that may present themselves in the immediate future. They also stated however, that the large cap companies may have a hard time initiating large returns due to their defensive natures.

If you want to have a properly diversified portfolio, and wish to position yourself to take advantage of the economic growth, I would suggest that you look into slowly increasing your percentage of large cap stocks in your asset allocation.

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