Money management companies such as TIAA-CREF and Roxbury Capital Management refer to mid cap stocks as the sweet spot of the stock market. "Cap" is market capitalization, or value, of a company. Mid caps fit in between very large companies and small cap stocks. Historically, mid caps as a group have outperformed stocks of both larger and smaller companies.
Mid Cap Indexes
Mid cap indexes have been produced by companies that offer different types of stock indexes. A stock index tracks the value changes of a selected list of stocks. The most widely followed mid cap indexes are the S&P; MidCap 400 and the Russell Midcap Index, which tracks the value of 800 mid cap stocks. Another mid cap index used by the fund industry is the MSCI US Mid Cap 450 Index.
Types of Index Funds
An index fund holds the same stocks as the designated stock index in the same proportion as tracked by the index. Index funds are available in both mutual fund and exchange traded fund -- ETF -- form. To invest in a mid cap stock index, you can buy shares of an index fund designed to track a specific mid cap index. The performance of the fund will closely match the index -- and the fund will earn stock dividends, which are passed through to investors.
Investing in Mutual Funds
Mid cap index mutual funds can be purchased directly from the mutual fund company. A mutual fund has an initial minimum investment amount -- typically $2,500 to $5,000 -- and then additional investments can be made in smaller amounts such as $100. With a mutual fund, you can choose to have dividends and capital gains distributions reinvested into more fund shares. Most discount stock brokerage firms also allow investors to buy no-load index funds at no cost.
Investing in ETFs
Shares of a mid cap index ETF must be purchased using a stock brokerage account. ETF shares trade on the stock exchanges and are bought and sold in the same manner as individual stocks. You can buy any amount of ETF shares in whole share increments. Each time you buy or sell ETF shares, you pay a stock commission. Any dividends earned will be deposited to the cash balance of your brokerage account.