Which type of stocks are generally considered to offer above-average returns but also come with higher risk?

Small cap stocks are typically characterized by their higher volatility and potential for substantial growth, making them appealing for investors seeking above-average returns. Companies classified as small cap generally have market capitalizations between approximately $300 million and $2 billion. Due to their size, these companies often have more room for growth compared to larger, more established firms, presenting opportunities for significant return on investment.

However, this growth potential comes with increased risk, as smaller companies may have less financial stability and face greater challenges in scaling up their operations. They may also be more sensitive to market fluctuations, economic downturns, and changes in investor sentiment. Consequently, while small cap stocks can offer attractive returns, they can also lead to greater loss potential, which is what makes them considered higher risk investments.

In contrast, income stocks typically provide steady dividends with less emphasis on price appreciation, making them more stable but less likely to deliver the high growth associated with small cap stocks. Utility stocks, known for their reliability and stable cash flows, often attract risk-averse investors. Blue-chip stocks represent well-established companies with a history of steady performance and dividends, typically associated with lower risk and more modest growth potential.