Diversification and Market Capitalization

It is hard to predict when the financial market will favor large cap, mid cap, or small cap stock companies, hence it is a good idea to include a mix of different sized stock companies in your investment portfolio. An investor who has a long investment time horizon and who is willing to take more risk in exchange for higher potential returns, may consider holding a larger allocation of small cap and mid cap stock companies in his/her portfolio. But an investor with a shorter investment time horizon and who is also looking for less volatile stock returns may want to hold a larger allocation of large cap stock companies in his/her portfolio.