Small-Cap Equities: What You Need to Know Before Investing | American Funds

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Mutual Fund Basics

Small-Cap Equities: What You Need to Know Before Investing

Investing in small companies can help with capital appreciation, but there are increased risks involved.

Small-cap equities are stocks issued by smaller companies. They typically have a market capitalization — the total value of all their shares — ranging from $300 million to $4 billion. (By way of comparison, the major companies listed in the Dow Jones Industrial Average have market caps of around $150 billion, on average.) Some small-cap stocks are relatively new to the equity markets, having only issued public shares in the past few years; others have been around decades.

Individuals can invest in small-cap equities by either purchasing individual company shares or investing in a mutual fund that invests part or all of its assets in small-cap equities. Mutual funds specializing in small-cap equities tend to be diversified among a large number of holdings.

Potential Benefits

  • Small-cap equities can provide high growth potential for investors; the vast majority of large-company equities started out as small-cap stocks.

Potential Risks

  • Small-cap equities are highly volatile, subject to price swings far more precipitous than larger company shares.
  • Investors in small-cap stocks run the risk of a company falling into serious financial trouble to a greater degree than larger companies.

Reasons to Consider

  • Investors seeking high growth potential may wish to consider investing a portion of their assets into small-cap equities or a mutual fund that includes small-caps.
  • They may not be suitable for investors seeking to protect their assets from volatility and downturns, such as those investors nearing or in retirement.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks.