Large-cap companies tend to be more stable and thus have less growth potential, mid caps tend to have a greater potential for growth and loss, and small caps tend to be the most volatile of the three in terms of growth potential and risk. Foreign stocks may also perform differently than domestic stocks, creating the potential for growth at times when the U.S. market declines. However, investing internationally carries additional risks, such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. Any of these factors could create greater share price volatility. Dividend-paying stocks provide income that can be reinvested or used to supplement other income, making them attractive to relatively conservative investors, including retirees. Some investors choose to diversify their stock portfolios by market capitalization, which is a measure of a company’s size and value. Small companies typically have characteristics that distinguish them from large corporations, so their stock prices don’t always behave the same way. Diversification does not guarantee a profit or protect against loss; it is a widely used method to help manage investment risk. Past performance does not guarantee future results. The return and principal value of stocks fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost. Dividends are typically not guaranteed and could be changed or eliminated by a company’s board of directors.
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