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Soon-to-Be Retirees, Beware: Small-Caps Cheap for a Reason

As we move further into the new year, investors are eager to know which investments will shine in the coming months. The Magnificent 7 stocks, including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla, have dominated the market gains in 2023 so far. This has led many to anticipate a broader participation from other sectors of the market.

One area that seems poised for a comeback is small-cap stocks. Despite a late-year rally, small-cap stocks are still trading at a significant discount. While it may be tempting to jump into the small-cap market, investors should proceed with caution, especially if they are close to retirement. The margin for error is smaller when time is limited, and investing in small-caps can be risky.

It’s important to note that cheap stocks are often priced low for a reason. Small-cap companies, in particular, face challenges such as higher interest rates on debt and a greater likelihood of being unprofitable. Larger companies, on the other hand, tend to have lower rates locked in due to their access to long-term debt at favorable terms.

According to data, the interest costs for large-cap companies have been notably lower than for small-cap companies over the past year. With a significant portion of small-cap companies being unprofitable, the combination of higher rates and a slowing economy could lead to an increase in bankruptcies within the small-cap universe.

However, there are still opportunities to be found in the small-cap market for investors willing to do their due diligence. While some small-cap companies may struggle, there are also hidden gems that could outperform the market. It’s crucial for investors to be selective and avoid blindly investing in funds that hold a broad range of small-cap positions.

In conclusion, while small-cap stocks may offer potential rewards, they also come with higher risks. It’s essential for investors to carefully assess the small-cap landscape and consider their risk tolerance before diving in. DailyBubble advises caution and thorough research when considering small-cap investments in the current market environment. Welcome to DailyBubble, your go-to source for all things entertainment news! Today, we are excited to bring you the latest updates on your favorite celebrities, movies, TV shows, and more.

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