Mega Cap Stocks in Your Investment Portfolio
Many financial experts recommend the inclusion of mega-cap industry-leaders' stocks as part of your investment portfolio. Such companies tend to dominate a portion of the market and enjoy relative security in this position.
In order to categorize companies according to their size market capitalization is used. It also measures the total worth of a particular company.
The formula for market cap estimation is:
Market Cap = Price per Share x Number of Outstanding Shares
This formula provides you with an idea of the money you should pay if you are willing to purchase all of the shares of stock of the company that are circulating on the market.
Companies can be divided by size in the following way:
- Small Cap - less than $1 billion
- Mid Cap - from $1 billion to $10 billion
- Large Cap - over $10 billion
- Mega Cap - over $100 billion
The latter category (Mega Cap) represents an addition to the three general categories. Some companies provide indexes that track the movement of these mega cap stocks. Such an index is the Russell Top 50 Index provided by Russell Investments.
This index includes 50 companies, which altogether represent around 40% of the whole domestic equity in the US stock market. Some of the companies are Microsoft, Exxon, Dell and etc.
In order to ensure that your portfolio is diversified enough you should include such large cap stocks.
Such industry giants will provide you with protection against inflation and increasing interest rates. Additionally they provide protection against slowing economy, due to their large amounts of cash and manageable debt.
Large cap companies are more stable during turbulent times than smaller companies. So, you should make sure that you include a large cap stock in your investment portfolio to provide protection against such unsteady times.
Finally, if you expect that bad economic times are nearing you should make sure that you put mega cap stocks in your portfolio in order to benefit from the relative security provided.
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