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What is Large Cap?

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  • Written By: John Sunshine
  • Edited By: Lucy Oppenheimer
  • Last Modified Date: 09 November 2016
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Large cap is an investing abbreviation for Large Capitalization. It is a reference to the market value or "capitalization" of a stock listed on public exchange such as the Dow Jones stock exchange. A stock or company is said to be large cap if it's market value is between 10 billion and 200 billion dollars. The limits though are somewhat arbitrary and will vary depending on who you ask. General Electric (GE) is an excellent example of a large cap stock or company.

Large cap stocks are generally considered safe stocks. The sheer size of these companies tends to make the stock price fairly stable. It is unusual for them to experience significant growth or to see large declines in the value of their stock price. For this reason, many investors tend to park their money in large caps during times of uncertainty or unrest in the stock markets.

However, not all large cap companies can be considered safe. Even among the stocks considered safe there are better choices than others. An intelligent and diligent investor will still review the specific company's financial statements and perhaps the industry outlook before investing in a particular stock.

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It is also possible to invest in large caps using mutual funds that specialize in large cap companies. There are many large cap mutual funds to choose from. Most "blue chip" companies are also large cap companies so a mutual fund that invests in blue chip companies is also a large cap mutual fund.

An even easier way to invest in large cap funds is to purchase Dow Jones index funds. Only large companies tend to be listed on the Dow Jones stock exchange, also know as the senior exchange. An index fund invests equally in the companies making up that index. So a Dow Jones 30 index fund will invest equally in the 30 companies that make up the Dow Jones 30 index. There are also large cap index funds available that will invest in large cap companies that are listed on other exchanges.

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