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Mid-Cap Stocks Are The Best Place To Invest For Long-Term Gains


Mid-Cap Stocks Are The Best Place To Invest To Book The Highest Gains

Mid CapsAn analysis of stock market returns indicates that mid-cap stocks are the best place to invest for long-term gains.  This is for a variety of reasons, which are outlined below.  Regardless of the reasons, it is important for investors that are looking to increase their long-term investment gains by the greatest amount possible to understand what history has shown regarding investment returns for various classes of stocks.

In other words, mid-cap stocks outperform the rest of the stock market when it comes to measuring stock market performance by the size of the companies, using the companies’ market capitalization as a measurement metric.   The market capitalization of a company is derived by multiplying the number of outstanding shares by the current price of the stock. When this is done, stocks can be classified in the following categories: micro-cap, small-cap, mid-cap, and large-cap. Out of these market capitalization categories, history shows that mid-cap stocks perform better than all other categories over long periods of time. This is independent of the type of business the companies are in, and includes just their market capitalization.

The Great Performance of Mid-Cap Stocks Over Time

Mid Caps Vs Small CapsSince the 2000 dot.com stock market top, mid-cap stocks have outperformed small and large-cap stocks, with mid-cap stocks gaining 145% since then. This statistic is even more impressive when you consider that severe bear market sell-offs have occurred during some of the years since 2000, yet mid-cap stocks have fared very well over this period of time. Since 2010, mid-cap stocks have posted impressive returns of 19 percent annually, which is better than small and large-cap stocks, on average.

Mid-cap stocks are good growth investments because many companies that are classified as mid-caps are at a mature stage in which they experience rapid growth in revenue and earnings. It is these types of growth stories that get Wall Street investors excited, which causes mid-cap stocks to get bid up in price.   Companies that fall into the mid-cap category of stocks also have the advantage of being able to restructure and reinvent themselves more easily than large-cap companies. Additionally, they are able to raise funds more easily than their smaller cousins in the small-cap realm and tend to have more stabile and diversified revenue streams than small-cap companies. These factors make mid-cap stocks the sweet spot in the world of stock investing.

Mid-cap stocks also offer some protection from global financial turmoil and currency fluctuations, since mid-cap companies do a majority of their business within the United States. Unlike their larger cousins, large-cap stocks, mid-cap companies have little revenue and earnings exposure to such things as a slowdown in Europe or a surging United States dollar. Mid-caps are primarily focused on the United States and therefore generally track the performance of the economy of the United States, which makes it easier for investors to understand the economic forces that affect their stock prices.

Investing In Mid-cap Stocks Using Funds

Mid Cap StocksInvesting in mid-cap stocks is not exactly like investing in stabile big-cap blue chip stocks. While most mid-cap stocks represent healthy and growing companies, there is a risk that some mid-cap companies could face financial difficulties, especially during hard economic times, and their stock prices could suffer as a result.

To avoid taking a hit to an investment portfolio from a mid-cap stock that sours, investing in mid-cap stocks using Exchange Traded Funds (ETFs) and mutual funds is a highly recommended way to spread the investment risk among numerous mid-cap stocks. The key is to find mid-cap Exchange Traded Funds and mutual funds that beat the stock market averages to benefit from the outperformance that investing in mid-cap stocks brings. It is also important to find Exchange Traded Funds and mutual funds that have low annual fees, since the lower fees add up to additional gains in your investment portfolio, especially when compounded over many years.

The following is a sampling of Exchange Traded Funds and mutual funds that focus on mid-cap stocks. The performance of mid-cap stock funds are usually compared to the performance of the Standard & Poor’s MidCap 400 index, which is an index that measures the performance of the mid-cap sector of the United States equity markets and includes some of the most high profile mid-cap stocks.

The iShares Core S&P Mid-Cap ETF (NYSE:   IJH) tracks the track the S&P MidCap 400 index with similar allotments of share holdings as the index.   Since IJH is a passively managed Exchange Traded Fund, it has an extremely low annual management fee of 0.14%.

The Vanguard Mid-Cap ETF (NYSE: VO) seeks to track the performance of the benchmark CRSP U.S. Mid Cap Index that measures the investment return of broadly diversified mid-capitalization stocks.   Yet another passively managed Exchange Traded Fund with an impressively low annual management fee of only 0.09%.

The iShares Russell Mid-Cap ETF (NYSE:   IWR) tracks the investment results of the Russell MidCap Index, which includes the 800 smallest capitalization stocks in the Russell 1000 Index. IWR is a passively managed Exchange Traded Fund with an annual management fee of 0.20%.

The Vanguard Strategic Equity fund (VSEQX) invests in mid-cap stocks. This mid-cap mutual fund has consistently beaten the Standard and Poors 500 (S&P 500) average. One thing that makes the Vanguard Strategic Equity fund stand out amongst mid-cap mutual funds are the very low fees that the fund managers charge of just 0.28 percent, which are especially low considering the fact that it is an actively managed mutual fund.   The industry average for this category is 1.3 percent annual management fees.

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