The adage that good things come in small packages isn’t just for Christmases and birthdays – at the right time, it can apply to your exchange traded funds (ETFs), too.
The next best crop of companies set to grow over the next decade will not be the biggest of the big companies. The large-caps are already giant, and if these solid businesses as we know them grew tenfold in value, they would become trillion dollar companies. While this is not impossible, it is highly unlikely.
Rex Moore for The Motley fool on MSNBC says that the greatest chance for the best gains are the small- and micro-cap companies. These half-pints are capitalized at less than $200 million, which means that there’s plenty of room for them to grow. Small-caps also tend to do better after a recession, since they’re more nimble and able to adapt to shifting market conditions with ease.
Remember, though, that with greater potential reward comes heightened risk. A micro-cap ETF is a good way to spread out the risk, and invest in a handful of these companies, rather than just one. For those investors who are ready to bear the land of small- and micro-0caps, be sure to go into the market with a strategy. By using a strategy such as the 200 day-moving average, you can protect yourself.
- iShares Russell MicroCap Index (IWC): up 6.7% year-to-date
- First Trust Dow Jones Select MicroCap (FDM): up 1.8% year-to-date
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.