Large cap stocks represent publicly traded equity interest in the largest corporations in the economy, typically in the $10’s of billions and higher. They tend to be well known companies and are usually household names. Large cap stocks tend to be less volatile and risky than small cap stocks but typically offer less opportunity for growth and appreciation.
The shares of large cap companies tend to trade frequently and be more liquid than shares of small cap companies, which oftentimes do not trade as frequently and can be less liquid.
Large cap companies tend to be very established in their line(s) of business and highly diversified in their operations. Many large companies are known as “blue chip” companies due to their high level of quality. The advantage which such companies have is that they tend to be less risky and more stable than smaller companies due to their breadth, size, and access to capital. The main disadvantage which these companies have is that they are unable to grow their revenues and earnings as rapidly as small companies.
As an investor, having a portfolio which is diversified across many different asset classes is a good strategy to manage the risk of your portfolio. By combining large cap stocks with other asset classes such as small cap stocks, international stocks and bonds an investor can tailor their portfolio to their needs.