Small-cap and micro-cap stocks outperform large-cap counterparts in the long term but show particular strength after economic shakiness

A small-cap stock is defined as shares of a company with a market capitalization between $300 million and $2 billion.

Small-cap stocks offer an attractive risk-reward profile, as these companies usually have a higher growth potential than large-cap stocks. Although small-cap stocks have a high amount of volatility, they appear to be lucrative bets when the economy is expected to boom.

Micro-cap stocks represent companies with a market capitalization between $50 million to $300 million. Micro-cap stocks have a world of potential. Often they are in niche markets with emerging business ideas or technologies, so there’s a massive growth window for a company that can manage to it its stride.

Also, micro-cap stocks aren’t nearly as well-known as the blue-chip names. If you’re an astute investor, you can get in early before the average investor buys in.

Small-cap and micro-cap stocks are inherently more volatile than those blue-chip established names. That means potentially greater reward and greater risk. To invest in these micro-cap stocks, you should have a pretty high risk tolerance and be ready to ride the waves.

Most companies start out as small-caps or micro-caps, but by continually growing their earnings, their share prices appreciate. This can increase the market capitalization (share price times shares outstanding) of the company to large, or even mega-sized, while investors along for the ride reap the profits.

Big names like Microsoft, Apple and Amazon were all small-caps at one point. But not all small-caps flourish like those giants have. Many fail or stop growing, which means losses or little profit for investors. Great companies reveal themselves over many years and decades by continually producing quality earnings and sales growth.

You can find the best small-cap stocks by looking for companies with strong earnings and sales growth. Analysts must also be forecasting continued growth into the future. In addition, weed out companies with erratic earnings or that are issuing shares excessively, which dilutes earnings and shareholders’ equity.

All stocks should trade on U.S. exchanges, have a share price above $2, a market cap between $250 million and $2.5 billion and have three-month average daily volume of at least 200,000 shares.

Expected EPS growth. Companies are only included if analysts predict at least 7.0% yearly average growth over the next five years. Current-year EPS growth is also expected to be positive (above 0%).

Recent EPS and sales growth. Earnings and sales have increased an average of at least 7.0% per year over the last five years. Earnings were also higher than the prior year for each of the last three years.
Profitable. All stocks on this list have had positive earnings for the last three years.
This methodology focuses on companies that are already profitable. While unprofitable companies can see their share prices rise too, profitable and growing companies have already proven they can do it. It is a less speculative way to play this segment of the market, as opposed to hoping a struggling company can eventually turn it around.

investing in stocks is all about returns, the next step when analyzing small cap stocks is to see how their performance differs from large or mega cap behemoths.

“Inflation is taxation without legislation.”

Inflation reduces the value of money held by the public, similar to a tax. The impact of inflation on purchasing power acts as a hidden cost on consumers’ wealth.

Inflation functions like a tax because it diminishes the real value of money. When prices rise, the same amount of currency buys less, effectively reducing people’s wealth if their income doesn’t increase at the same rate. This erosion of purchasing power affects everyone who holds money, making it a universal ‘tax’.

However, unlike traditional taxes imposed by governments, which are debated and legislated, inflation can occur without any direct legislative action. It’s often the result of complex economic factors, including monetary policy decisions by central banks, supply and demand dynamics, and changes in production costs.

Purchasing power risk, also known as inflation risk, refers to the potential decrease in the value of money over time due to inflation. When inflation occurs, the general price level of goods and services rises, meaning that each currency unit can buy fewer items than before. This risk is particularly relevant for investors holding cash or fixed-income securities, as the real return on their investments may be reduced when inflation is high.

In simpler terms, if you have a certain amount of money today, you might be able to buy a basket of goods with it. However, if prices increase over time due to inflation, that same amount of money will buy you a smaller basket of goods in the future. This erosion of purchasing power can affect not only personal finances but also investment returns and overall economic health.

Central banks often adjust interest rates to try to control inflation and maintain the currency’s purchasing power. One common measure of purchasing power in the U.S. is the Consumer Price Index (CPI), which tracks the average price change over time for a basket of goods and services, including transportation, food, and medical care3. Monitoring CPI and other economic indicators can help individuals and policymakers understand and mitigate the impact of purchasing power risk.

Source:  https://haikhuu.com/education/purchasing-power-risk

‘You have to want to ‘learn to trust yourself more.’ It is way easier to stay in our comfort zone.” ~ Jamie Kern Lima

Spending more than you have never ends well.

Spending more than you have is indeed a precarious path. It’s like diving into a stormy sea without a life jacket, or standing on a brick wall while simultaneously removing one brick at a time. It can lead to financial stress, debt, and instability. Whether you’re young or mature, wise financial choices are essential.

Remember, financial stability and planning are like a well-anchored ship. They can provide you with financial peace of mind, lead you to financial independence, and help build wealth.

Keep in mind:  In the ocean of expenses, sail with care,

Overspending waves can lead to despair.

Budget your voyage, trim the excess sail,
And watch your financial ship weather the gale.

So, set sail wisely, and may your financial compass always point toward prosperity and abundance!

Here are some prudent tips to avoid falling into the overspending trap:

1. Budgeting: Create a realistic budget that outlines your income, expenses, and savings goals. Please be sure to stick to it diligently.
2. Emergency Fund: Build an emergency fund to cover unexpected expenses. Having a safety net helps prevent overspending during crises.
3. Track Expenses: Keep a record of your spending. Use apps or spreadsheets to monitor where your money goes. Awareness is key.
4. Prioritize Needs Over Wants: Distinguish between essential needs (like rent, groceries, and utilities) and discretionary wants (like dining out or shopping). Prioritize needs first.
5. Avoid Impulse Purchases: Pause before making a purchase. Ask yourself if it’s necessary or if it’s an impulsive desire.
6. Limit Credit Card Usage: Credit cards can encourage overspending. Use them wisely and pay off balances promptly.
7. Set Financial Goals: Establish short-term and long-term financial goals. Having a purpose for your money helps curb unnecessary spending.

Remember, financial well-being is a journey. By practicing mindful spending and making informed choices, you can avoid the precarious path of overspending.