Table of Contents

What is a small-cap stock?

Investing in small-cap vs. larger-cap companies

What are the potential benefits and risks of small-cap stocks?

Considerations before buying small-cap stocks

The bottom line

LearnStock TradingWhat Are Small-Cap Stocks?

What Are Small-Cap Stocks?

Jul 5, 2022


5 min read

Small-cap stocks can offer an opportunity for investors to get on board with a company early and potentially gain higher returns over time compared to large-cap stocks.

Some investors may hold a “go big or go home” mentality when it comes to investing in companies: The biggest companies like Apple and Meta (previously Facebook) can be more stable and are oftentimes highly-prized by investors for their high market capitalization of $10 billion or more.

But small companies don't have to be a turnoff. While small-cap stocks tend to be more risky and volatile, some can be treasures for investors, especially when the companies are experiencing periods of rapid growth.

What is a small-cap stock?

A small-cap stock is a publicly traded company with a market capitalization, or value on the open market, of $2 billion or less. 

Small-cap stocks are sometimes newer, least developed companies while mid-cap stocks tend to be more established. Mid-cap companies are typically companies experiencing—or have recently experienced—rapid growth, with a market value up to $10 billion. 

While considered riskier compared to mid- or large-cap stocks, they can have more earnings potential compared to large-cap companies over the long-term.

Investing in small-cap vs. larger-cap companies

For investors looking to diversify portfolios, it might be helpful to explore and understand the differences between small-cap and larger-cap companies.

Small-cap stocks vs. mid-cap stocks

Small-cap stocks are somewhat like the youngest sibling: They tend to be all over the place and may need help working on consistency. Mid-cap stocks are the ones that have gotten past the rocky start of small cap and tend to be more stable investments than their small-cap siblings. 

Unlike small-caps, mid-cap companies typically operate in a larger market, including internationally. Both can experience growth through mergers and acquisitions, but mid-cap companies are oftentimes on the receiving end of this activity because of their middle ground between small- and large-cap stocks. That can create growth potential with less risk. 

Small-cap stocks vs. large-cap stocks

While small-cap stocks tend to be the new kid on the block, large-cap stocks are some of the most well- or long-established companies in the market. They are typically mature, well-known companies, and might be household names. They have track records with years of data to showcase performance history. 

Large-cap companies are usually either major players in their respective industries or dominant in their space, and they can operate on a global scale. They might offer dividend payouts to shareholders at regular times throughout the year as an incentive to buy their stock. Large-cap companies may be more inclined to acquire other companies—possibly mid- or small-cap companies—to expand their own business or eliminate competition.

Large-cap companies can be more conservative investments. These companies might experience volatility, but not as much or as drastic as their small-cap counterparts.

What are the potential benefits and risks of small-cap stocks?

Like any investment, small-cap stocks have potential benefits and risks. It’s important to weigh both sides when considering what to include in a portfolio.

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

Get Started

Potential benefits of small-cap stocks

  • Higher growth potential.

    Sometimes a lower market capitalization means there’s more room for growth, and in turn, greater potential for higher earnings over the long term. The returns on small-cap stocks on the S&P 600 and Russell 2000 can outperform the S&P 500, at times, especially following a recession or bear market. According to The Wall Street Journal, the Russell 2000 gained 8% in the period between its low close on May 11 and June 1, 2022, while the S&P 500 added only 4.2%. 

  • Early investing opportunities.

    Investors can get early access to up-and-coming companies. Companies like Amazon and Microsoft were once small-cap companies that investors took a chance on. In the case of Amazon, for example, The Wall Street Journal reported that had any investor bought shares in the fledgling company in 1997 when it went public (and its market capitalization was under $2 billion), would have reaped significant returns—a $10,000 investment would be worth $4.9 million 20 years later.

Risks of small-cap stocks

  • Greater volatility.

    Investors could be putting their money into the next big thing—or, a company that’s on the verge of flopping. Since these companies can be newly established, they may not have necessarily earned a track record so investors could measure performance of a company’s management, operational status, or finances—all which can have an impact on how a stock performs.

  • More illiquid.

    Small-cap stocks don’t trade as frequently as their counterparts on the S&P 500. It can be harder to sell small-cap stocks for cash, so investors may sell at a big loss. 

Considerations before buying small-cap stocks

If investors are considering buying small-cap stocks, they may first want to weigh whether their investment goals line up with the potential returns on small-cap stocks. 

  1. Where do they sit within the small-cap market?  The S&P SmallCap 600

    is the index that follows small-cap companies to measure their liquidity and financial stability. The Russell 2000, on the other hand, measures 2000 of the smallest small-cap stocks. Investors can use these indexes as guides for assessing small-cap stocks. 

  2. What does the data say?

    Since some small-cap stocks tend to have less information available, investors may need to devote more time to researching them through avenues like company websites, industry publications, or SEC reports and filings, for example. Also consider checking which small-cap companies have been around for awhile and have proven growth records during times of economic uncertainty.

  3. How do they fit into an overall portfolio?

    Individually hand-picking stocks can be a risky endeavor compared to other types of investments like mutual funds and exchange-traded funds (ETFs). Investors have different goals and priorities, and adding small-caps can diversify those portfolios. Investors can buy small-cap stocks individually or through a group of mutual funds to balance out portfolios. Risk tolerance might also impact the types of small-cap stocks investors buy.

The bottom line

Small-cap stocks can offer an opportunity for investors to get on board with a company early and potentially gain higher returns over time compared to large-cap stocks. Some investors, however, may not have the financial cushion or tolerance to invest in small-caps since these companies can be unestablished or come from developing sectors, with typically higher risk and more volatility, which can introduce to investors more potential for losses. Therefore, investors may want to consider doing their homework on small-cap stocks to make informed decisions based on their goals and risk tolerance.


Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

Three Things, a newsletter from Titan

Stay informed on the most impactful business and financial news with analysis from our team.

You might also like

What Is an At-the-Market Offering & How Does It Work?

At-the-market offerings are one tool publicly traded companies can use to raise capital. They are faster and more flexible than traditional follow-on offerings.

Read More

Day Trading: Buying and Selling a Stock on the Same Day

Taking advantage of fluctuations in the market is an appealing idea, having access to apps and online brokerages has made day trading a more accessible venture.

Read More

What Happens If a Stock Goes to Zero?

A stock can plummet to zero — but what are the implications of a stock that is worth nothing?

Read More

How to Invest in Stocks: A Beginner’s Step-by-Step Guide

To help you understand the stock market, its terminology and rules, investment strategies, what type of investor you are, and how to invest in stocks, here’s a beginner’s guide.

Read More

Cash Management

Smart Cash

Smart Cash FAQs

Cash Options


© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.

Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.

The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit for applicable terms and conditions and important disclosures.

Cryptocurrency advisory services are provided by Titan.

Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.

Contact Titan at 508 LaGuardia Place NY, NY 10012.