The term means market capitalization – the market value of all of a company’s existing shares. It is basically a company’s shares multiplied by the current market price of one share. Investors gauge a company’s price by this rather than by sales or assets. It is also an effective way to see how the economic downturn of 2008 affected the financial world. The total market capitalization was as high as $57.5 trillion in May 2008, slid to $50 trillion in August and then went down to $40 trillion in September 2008, according to the World Federation of Exchanges.
There are no hard rules about the values of each designation. One gauge says small-caps are less than $2 billion in value, mid-caps are up to $10 billion and large-caps are more than $10 billion. Others say mid-caps start at $5 billion and small-caps start at $1 billion. And still others have added more categories: mega-caps, more than $200 billion; micro-caps, $50 million to $300 million; and nano-caps, below $50 million.
The size makes a difference in investor expectation. Small-cap stock values can grow or shrink quickly. The gain may be great, but so is the risk. These companies can grow into mid- and large-cap companies, taking investors along for the ride. But they also have less to fall back on when times are tough. They can drop in a hurry, again taking their investors with them.
Large-cap companies, which make up half of total market capitalization, tend to be steady in their performance. They are usually the companies that dominate their industry and are not likely to grow any more enormous by percentage, or to shrink, for that matter. These entities are often devoted to maintaining their position. So the investments are usually steady.
Mid-caps are considered a mix of small-cap and large-cap. They often have ambitions to grow into a large-cap, but that drive can also lead them to take risks. The companies are still substantial and are not likely to take ill-advised risks.
Investors should assess their risk tolerance before deciding to invest in stocks. Then they can determine which class of companies to put their money into. Many mutual funds specialize in different groups, so investors can take advantage of company size characteristics but spread the risk at the same time. The funds that track indexes such as the S&P 500 focus on large- or mega-cap companies, which offer stability and slower growth. They usually stumble only in significant downturns such as those after the 9/11 attack and the financial meltdown of 2008.

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For the past 10 years, gold has been surpassing expectations. It had dropped to $272 an ounce in 2000, and, at the time, few thought the price would rise dramatically. But over the past decade the price kept rising – breaking records – until it hit a high of $1,226 in December 2009. With each new record, many observers predicted that the price could not possibly go much higher and that the bubble would burst. As of this writing, the price has dropped to $1,092, with many analysts saying that the bubble has finally burst. But that has been said many times in the past decade, only to be followed by another rally.

Back in 2000, those who predicted higher gold prices were envisioning a worsening economy, which usually drives up the value of gold. It is the standard investment that many turn to for security in uncertain times.

Quite often the price performance is the inverse of the stock market’s, which does better in a stable environment. Some say now that the economy appears to be steadying, gold prices should stabilize or drop. In fact, many financial advisors caution against jumping into the precious metals market, fearing a plummet. Even some of those who previously encouraged precious metals investing are backing off these days.

“It was great to get in about three or four years ago, but now you have to be much more cautious,” Cary Carbonaro, a financial planner with Stonegate Wealth Management of Clermont, Fla., told the Orlando Sentinel. “It has had a huge run-up, but it is a cyclical thing.”

Even George Soros said, during the World Economic Forum in Davos earlier this year, “The ultimate asset bubble is gold,” but then, according to reports, doubled his own investment in gold a month later. That could be because he foresees an increase in inflation, which also drives up the value of gold.

Those who want to jump on the golden bandwagon are advised to be cautious in taking that leap. Even the most enthusiastic advisors still say investors should put only a small percentage into precious metals – 5 to 10 percent of their total investment money at most. Also, most advise their clients to invest in a fund rather than buy the metal itself, mostly for security reasons. After all, what’s the use of an insecure investment meant to bring security in an insecure time?

Some might turn to mutual funds, which would pool huge sums of money and invest it across many industries and types of investments. One fund can include stocks and bonds. Another type is a subcategory fund that might only have stocks and maybe even only focus on a particular industry. Individuals have a vast universe of funds to choose from to match their risk tolerance and investment preferences.
Some people might like the idea of the mutual fund but not the lack of control. They don’t want to just set it and forget it.
For them, exchange-traded funds offer an acceptable hybrid. ETFs can be thought of as a mutual fund that trades like a stock. Like an index mutual fund, an ETF represents a basket of stocks that reflect an index such as the S&P 500. But it can be traded on a stock exchange, just like a company. ETFs combine the benefits of a mutual fund’s investment diversification and low operating costs with the trading flexibility of individual stocks. Investors can short-sell ETFs, buy them on margin and purchase only one share, just like a stock.
ETFs have grown in popularity very quickly since they were introduced in the early 1990s. The first successful one was an SPDR fund, managed by State Street Global Advisors. The acronym came from the first fund, the Standard & Poor’s Depositary Receipts (SPY), which is also reportedly the biggest ETF in the United States. State Street now manages many SPDRs.
Now hundreds of ETFs are trading on the market, tracking a wide variety of sector-specific, country-specific and broad-market indexes. Some investors also like ETFs for their transparency; they are required to reveal their holdings on a daily basis, unlike mutual funds, which only do so periodically.
Whatever the reasons, it is clear that people like them, because ETFs have grown tremendously during the recession. ETFs now have more than $1 trillion invested in them, according to a BlackRock report in January. The assets under ETFs’ management worldwide grew by 45.2 percent in 2009 alone. That momentum does not appear to be slowing down this year.