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 1 year ago

What is a small cap fund?

Comparison of benefits and reasons for investing in funds; explanation of the associated risks and scrutiny...

Comparison of benefits and reasons for investing in funds; explanation of the associated risks and scrutiny of investment companies’ products. (around 300-400 words) Please without plagiarism thank you :)

What are the benefits and risks of outsourcing IT services?

A company is considering investing in a project that requires the company to take on risks...

A company is considering investing in a project that requires the company to take on risks outside of the company's current scope. As a result, which of the following things will happen? Select one: a. The company's stock value would drop unless the project increase the company's expected returns. b. The company does not have to recalculate its WACC to evaluate the project. c. All of these things. d. The project would decrease the company's cost of equity.

Stock Frauds: what went wrong? Penny stocks, also known as micro-cap stocks, nano-cap stocks, small cap...

Stock Frauds: what went wrong? Penny stocks, also known as micro-cap stocks, nano-cap stocks, small cap stocks, or OTC stocks, are common shares of small public companies that initially trade at low prices per share. It is also a term for inexpensive stocks that subsequently become highly lucrative holdings. However, sometimes, it is too good to be true if some tend to manipulate the market. • Question: what sort of issues involved, what they would have done differently to prevent...

The key similarities and differences between a small company equity fund (also called a small cap...

The key similarities and differences between a small company equity fund (also called a small cap fund) and ordinary equity fund (also called a large cap fund).

What is financial leverage? What are the benefits and risks associated with financial leverage?

What are some of the risks and some of the benefits of CT scans? If you...

What are some of the risks and some of the benefits of CT scans? If you were a public health professional, what could you do to increase the benefits, but decrease the risks of CT scans?

What are some of the benefits and risks of vertical integration as part of a company’s...

What are some of the benefits and risks of vertical integration as part of a company’s business strategy? please explain vertical integration purpose, risks, and the role that business strategy plays as part of the strategic management vison, goals, and objectives of the organization.

What are the risks and benefits of expanding the Disney brand in New ways such a...

What are the risks and benefits of expanding the Disney brand in New ways such a s videos games or superhouse

Question