A large cap fund specializes in stocks with a market value of more than $5 billion. Such a fund focuses on large, wellestablished companies, which tend to have lower risk than small companies. Large firms also often provide dividend income, which smaller and newer firms rarely do. Examples of large cap companies are IBM and General Motors. (They are also known as blue chip stocks, named after the most expensive chips used for gambling games like poker.)
As always, the benefits of large cap funds come with tradeoffs.
Although a large cap fund is relatively low-risk, growth is likely to be steady, but slow in most economic circumstances. A big, old company like General Motors has a well established position in the auto marketplace, and the number of cars sold in the United States or the world is probably not going to double or triple in the next five years. By contrast, sales could grow that quickly in a brand-new industry such as biotechnology. Thus, a large cap fund is a good choice for a more conservative investor, or for that portion of your portfolio that you don’t want to take chances with. (These generalizations don’t always hold true. At times, large cap funds actually grow more quickly than small cap funds. But such times are the exception rather than the rule.)
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