I have a 401k and am wondering if mid cap and small cap funds are the way to go? And if not what.?

Answer 1

Right now large-caps are on a tear, except for oil companies. But mid-caps tend to have some stability in that they've fought the fires of being small and survived. Tomorrow's large caps will include some of the more successful of today's mid-caps. All of the large caps used to be smaller once. Since you are saving for the long-run, your retirement money, putting some in the small-caps is good, but putting some in the large and mid-caps might be better. There is enough uncertainty in the world that the small-caps might not fare so well. If the dollar takes a dive because of China floating the Yuan, Euro becoming the monetary standard of the world, and asian banks start dumping American governmental debt. We could have a crisis and the small fish might not survive in greater numbers than the predominantly cash-rich large caps and mid caps that are more stable than the small companies. There will be some stars, but there will be a lot of bodies littering the economy. Stick with the big and strong for right now--but there are technologies brewing that may change things, but they are too early for that now.

Answer 2

It all depends on your risk level. The best is to be invested in multiple categories all at the same time. If you have low tolerance for loss, than bonds and money markets are the best. If you are willing to take the more volatile up and downs that make up mid cap and small cap funds may work for you. With me, since I am single making decent money and can stand the risk, I am 100% in stocks. Most of mine is in small cap and international funds. I understand that they can gain 20-40% in a good year, but they can also lose 10-20% on a bad year. For me, I am more looking for the long term returns than the weekly, monthly or quarterly returns. I try not to chase the latest fads and do the sit and wait. If I was investing money in non-retirement accounts, I would handle it differently depending on the time til need of the money.

Answer 3

Mid and small-cap had a great run in recent years. But these things don't last (i.e. "return to the mean"). In addition, there are growing signs of a possible recession or slowdown in the economy, and this typically is harder on small companies. At this time, I would recommend keeping most of your 401K money in large-cap of US companies. You can still allocate 10 to 20% for small/mid-cap.

Answer 4

Diversity is the way to go.