Watching children grow up is one of the most fascinating parts of life. In only a couple of years they go from helpless doll to tornado of destruction. They wobble around rooms making quick work of your order and organization. In another couple of years they begin to really dive into things with fearsome curiosity. By the time they are 10 or 11 years old they may have grown close to 1000% by weight!
Micro cap stocks give you the opportunity to participate in a similar kind of growth. Don't be fooled by the title: micro caps are multi-million dollar companies. Cap is short for capitalization, which in this case is just pointing to the relative size of the corporation. They aren't garage startups. However, when compared to a company like Amazon, valued at 775 billion, a company worth 50 million dollars looks pretty small. Smaller corporations have not yet grown to full capacity. They have the possibility of significant expansion still ahead.
There are risks, of course, which is why buying micro caps through a mutual fund makes the most sense. DFA US Micro Cap (a.k.a. Dimensional) was the first US micro cap fund (1981) and small cap investing is a real forte for DFA. They have done some of the best work of any group in highlighting the power of investing in small companies.
The fund takes a passive, index-like approach and holds over 1500 companies, so the individual risk you face from a complete loss in any one business is miniscule. The tax efficiency of the fund is high owing to the low-turnover approach of the fund. That is, the holdings aren't frequently bought and sold.
A $10,000 investment in 1981 would be worth $593,259. That is a cumulative return of 5833%! Not bad for starting small. DFA US Micro Cap can play a powerful role in building long-term wealth.
DFA funds can only be bought through an advisor -- I will sometimes highlight funds like this because I am indeed excited about DFA. At the same time, I recognize there are other great options out there for do-it-yourselfers.