15 Nov Comparing global vs. large-cap investments

Q. What is the difference between large-cap stocks and global stocks? I’m trying to pick out a mutual fund.
— Newish investor

A. We’re glad you asked. When you are a “newish investor,” it’s always smart to keep learning before you buy any investments.

Here’s the lesson of the day.

Large-cap stocks are shares of a company with a market capitalization of more than $5 billion, said Alan Meckler, a certified financial planner with Cornerstone Financial Group in Succasunna.

“Capitalization is the company’s stock price times the number of shares,” Meckler said. “These are the well-known companies you hear about in the news. There are large-cap companies worth more than the economic output of many small countries.”

Large-cap companies are stable, Meckler said. The size makes them less likely to go out of business. Also, he said, investors tend to flock to large-cap companies during the downturn in the business cycle.

Another attractive quality is that these stocks pay dividends.

“That creates another source of income for conservative investors,” Meckler said. “The companies pay dividends because they know the stock price probably won’t appreciate in value as fast as a growth company.”

Now let’s talk global.

A global mutual fund can invest in companies located anywhere in the world, including the investor’s own country, Meckler said.

These funds provide more global opportunities for diversification and act as a hedge against inflation and currency risks.

“Many people confuse a global fund with an international, or foreign, fund,” Meckler said. “The difference is that a global fund includes the entire world, whereas an international/foreign fund includes the entire world except for companies in the investor’s home country.”

Proper diversification should be considered in any portfolio, Meckler said, noting that means not only owning large-cap stocks or global, but small-cap stocks, mid-cap stocks and bonds.

“Diversification does not ensure a profit or protect against loss in a declining market,” he said.

That being said, keep learning before you put your hard-earned money into any investment, and consider reaching out to a professional if you need help.

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The post was originally published in November 2017.