What are the benefits/risks for investing in a small-cap company?

Expert Solution

Since, the small cap companies still have a large amount of growth opportunities ahead of them, investing in small cap companies helps take advantages of the increased growth potential in these companies.

The advantages are:

These stocks can provide the advantage of a higher stock price in case the small caps company exploits the opportunities for growth.
These stocks are still undiscovered by the market , if these stocks works out they can help your investments to grow at a very high pace.
When small cpas stocks are added with large cap stocks in the portfolio, it provides an excellent opportunity for diversification in the portfolio.

Disadvantages:

Investors who have a high risk appetite can invest in small cap companies, not all investors like risk. Hence, making such investments might not be suitable to all.
These stocks are highly volatile and risky.
It is very important that the we appropriately time the purchase and sale of such stocks. As it is important that these stocks are bought at the right price in order to sell them at a profit.

jeff jeffy answered 2 years ago

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