The impact of size

You can subdivide stocks into many different categories as you attempt to assess the potential return they'll provide and the potential risk they pose to you and your investment portfolio.

One of the most widely used categories is market capitalization, or company size, sometimes shortened to market cap. You calculate market cap by multiplying the current price per share times the number of shares a company has outstanding. In a simple example, a company that has a million shares in the marketplace that sell for $20 a share has a market cap of $20 million.

What's the cap?

Large caps are the biggest companies. They are the most likely to pay dividends. They usually have more financial assets that can help them survive a market downturn. Their market cap is usually over $10.9 billion.

Mid caps are medium sized companies. They may or may not pay dividends, and they may have more potential for growth than large caps. Their market cap is usually between $2.3 billion and $10.9 billion.

Small caps have a market cap of less than $2.3 billion — sometimes much less. These companies usually don't pay dividends. While their shares may increase more quickly in price, they may also expose you to a greater risk of loss because they often have fewer financial resources to see them through a market downturn.