Asset Classes According to Value

Asset Classes

According to Value Line (Value, 2008), Bank of America (BAC) is classified as a Large Cap stock. Large cap stocks are usually well-known companies that generate billions of dollars in revenue and expenses and have the capability of assuming a large amount of debt. Looking at large cap stocks in general it can be said that as a whole they are very important to the American economy because of their capabilities as listed above, as well as the fact that they employ large numbers of people, and usually produce valuable goods, commodities or provide necessary societal services. The definition of large cap stocks is usually that the company has over $5 billion in capitalization, but this is not an arbitrary number, some industry specialists believe that it should be set at over $8 billion.

Some of the companies that can be considered as large cap are found in industries such as banks/financial services, technology, pharmaceuticals, communications, oil & gas, and retail.

Specific companies that are considered large cap include Bank of America, Wal-Mart, IBM, Hewlett Packard, at&T, Merck and Exxon. Many of these firms pay dividends that is also considered as a benefit of large cap stocks. Most of these companies as well as a many of the other large cap firms trade on the New York Stock Exchange (NYSE).

Since the definition of a large cap stock is primarily a measurement of the company's size as a corporation, the names of these companies are fairly recognizable to the average investor. When deciding whether to invest in large cap stocks, most organizations (mutual or pension funds, etc.) decide to do so because large cap stocks do not normally fluctuate as much as small cap stocks.

The large cap stocks also provide a measure of security and safety not found in small caps, this is due to the sheer size of the company as well as any dividends paid and the fact that they can usually weather financial storms in a smoother manner than smaller companies can. Usually a fund manager or investment advisor will consider the goals of the fund or the individual investor before making any stock recommendations or purchases. In the current investment environment decisions as to what to invest in should be made after carefully considering those goals or objectives. With the American economy in a slow-growth mode, many investors will be seeking the safety and security of large cap stocks and the dividends they pay.

Many of these same investors will be making such stock purchases through a mutual fund investment vehicle. A mutual fund is managed in much the same manner as an individual portfolio. The one key difference is that there are a lot of investors putting their money into a mutual fund. The mutual fund's manager is bound to follow the investment path that would most likely be successful in reaching the mutual fund's goal or objective. Since there are a variety of investors seeking to invest varying dollar amounts, each fund must state explicitly what it is attempting to achieve.

There are as many different mutual funds as there are classifications of investments. Large cap stocks are purchased by large cap mutual funds, small cap stocks by small cap mutual funds.

Mutual funds can be classified as stock or bond funds, fixed income, dividend funds, large, small and medium cap funds, domestic and international funds, growth funds and even foreign market funds. There is usually a mutual fund for any investor. There are also no-load and loaded funds, that refer to whether an investor has to pay a fee upfront to invest in the fund, or whether the fee is included in the fund's expenses.

An example of a growth mutual fund is the T. Rowe Price New America Growth Fund. The fund is comprised of almost 93% domestic stock, approximately 3% foreign stock and the remainder in cash. It is down almost 17% for 2008 (which could mean that it is a good time to buy). The fund holds mainly large cap stocks and the manager) in all likelihood) is continuing to dollar cost average as the large cap stocks continue lower in value.