For decades, analysts have heralded small-cap
stocks as the real growers in the
stock market.
And they're right to some extent; a study that tracked stock returns
from 1926 to 2008 found that U.S. small caps delivered an annualized
return of 16.5% compared to large caps' annualized return of 12.9%.
But that doesn't
mean investors are dumping their large-cap stocks -- big, stable companies like
Coca-Cola (NYSE: KO) and
Microsoft (Nasdaq: MSFT) -- in favor of lesser-known small-cap companies (those that are smaller and presumably faster-growing).
In fact, just looking at the entire U.S. stock
mutual fund market as of Sept. 30, 2012, investors held a whopping 75% of all assets ($2.6 trillion) in large-cap
equity mutual funds. That dwarfs the 15% ($507 billion) investors held in mid-cap
funds and the 10% ($360 billion) held in U.S. small-cap funds.
So why are investors using large caps as the backbone of their portfolios?
Because most of them have learned, sometimes reluctantly, that large
companies have something small companies don't have: deep pockets and
stability.
Through recessions, wars and market crashes, large companies have
been a proven long-term source of both safety and impressive gains. Just
look at how these companies fared over the past 31 years:
Want to know exactly how large companies such as these make solid, long-term
investments? It all comes down to three main advantages that large-cap companies have over their smaller company counterparts.
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