Making Money in the Middle

Fine choices that split the difference between big-company and small-company stocks.

Investing in midsize companies hardly means settling for midsize returns. Investors often overlook shares of so-called mid caps -- generally stocks with market capitalizations of $1 billion to $10 billion -- as they fixate on the behemoths and runts. But, on average, midsize companies grow faster than the giants and are better priced than small companies. And as small-company stocks finally lose steam and the market waits for big-company shares to emerge from their long slumber, it makes sense to put some money in mid-cap stocks.

Mid caps haven't exactly been slouches. This year to May 14, Standard & Poor's MidCap 400 index gained 12%, handily outpacing both the large-company-oriented S&P 500 and the S&P SmallCap 600. Over the past ten years, the S&P 400 returned 14% annualized, beating the large-company and small-company benchmarks by an average of six and two percentage points a year, respectively. What's not to like?

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Contributing Editor, Kiplinger's Personal Finance