Market capitalization ranks stocks into a number of distinct groups. Mid cap stocks are in the middle rank and represent companies whose total market capitalization is between $2 billion and $10 billion US dollars (USD). Market capitalization is the product of the stock price and the number of stock shares issued, so if XYZ company has issued 1 billion shares and the stock price is $3 USD, then its market capitalization is $3 billion USD and XYZ company is a mid cap company. Its stock shares would be considered mid cap stocks.
This is important when considering an investment in a particular company. Each rank has certain stereotypical features that you can look for in the stock under consideration. Mid cap stocks are more risky than large cap stocks and less risky than small cap stocks.
Generally, risk of company failure decreases as the company increases in size. However, a mid cap stock also has better potential for growth than a large cap company. A very large company may have completely saturated its market, while a mid-sized company may have room to grow. So when considering an investment, you are basically trying to decide if the stock in question has the potential to grow into a large cap stock. If you are right and make the investment, you will have a successful investment.
If you do not like the idea of researching individual companies, you can still invest in mid cap stocks using mutual funds. There are many mutual funds that specialize in this type of stocks. Investors in these funds expect to achieve greater returns over the long run than those investing in large cap funds. However, the returns may be much more volatile over the short term. This means that, if you check your portfolio value every week or month, the investment in may be up a large amount one week and down a small amount the next time you check, while the large cap stock will be up a small amount every time.
Over time however, you will expect your mid cap stocks to have a larger return than the large cap stock. They are usually growth stocks, and while growth stocks are expected by many to outperform a mature or large cap stock, this is not always the case. Ultimately, the decision to invest in mid caps comes down to individual investment style and preference.