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Date : 21/06/2023

How Much Small Cap Should I Have In My Portfolio

What are Small Caps?

Small-cap stocks is a reference to the market capitalisation or size of a public company. Companies with small capitalisation generally have a market capitalisation between $300 million and $2 billion and are traded on the stock market. These smaller companies generally carry higher risks than larger companies, but they can also potentially offer investors higher rewards. They are often considered higher risk investments due to lack of liquidity in the markets, they are less researched and have fewer analysts following them.

Should You Have Small Caps in Your Portfolio?

Small-cap stocks present investors with an opportunity to diversify away from large-cap exposure. With that said, it is always important to remember that the risk associated with investing in small-caps is significantly higher than that of large-caps.

In order to properly diversify your portfolio, it is important that you understand the risks associated with investing in small-cap stocks as well as the rewards. Investing in a small-cap stock might provide a great return, however, these stocks are highly volatile and you should only allocate a small percentage of your portfolio to higher risk investments.

What Percentage of Your Portfolio Should Be in Small Caps?

The amount of small-cap stocks each investor should have in his or her portfolio will depend on the goals of the investor. Generally speaking, a lower risk investor should not allocate more than 10-20% of their portfolio to small-cap stocks. High risk investors may want to allocate up to 40-50% in small-cap stocks.

No matter what percentage of small-cap stocks you decide to include in your portfolio, it is always important to remain diversified and ensure you have a good mix of stocks from large-cap and mid-cap companies as well. Additionally, you should regularly review your portfolio and adjust your allocations accordingly.

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