If you have a high tolerance for risk, then I feel it would be well worth gaining some exposure to the small cap side of the market.
This is because if you can find the next blue chip share when it is still only a small cap, you could generate mouth-watering returns.
A prime example of this is Ramsay Health Care Limited (ASX: RHC). The global private hospital operator has gone from being a reasonably small player to an industry juggernaut over the last couple of decades.
In fact, in 2000 you could have picked up Ramsay’s shares for 80 cents each. This means that a $5,000 investment at that point would have given you 6,250 shares.
This morning the Ramsay share price is changing hands for $63.22, which gives those 6,250 shares a valuation of approximately $400,000.
In addition to this, in FY 2021 Ramsay is being tipped to pay fully franked dividends of $1.28 per share.
This means those 6,250 shares you picked up in 2000 will be generating a tidy $8,000 in dividends next year. That’s $3,000 more than your original investment!
Overall, I believe this demonstrates why buying quality small cap ASX shares has the potential to have a very positive impact on a balanced a portfolio.
But which small cap ASX shares should you buy today?
It is worth remembering that for every Ramsay, there are countless small cap ASX shares that fail to live up to expectations.
However, I believe you can increase your probability of success by focusing on small cap shares with strong business models, large addressable markets, and industry-leading products.
Three small cap ASX shares which I think tick a lot of boxes and could be worth investigating further are sales enablement software provider Bigtincan Holdings Ltd (ASX: BTH), HR and payroll software provider ELMO Software Ltd (ASX: ELO), and cloud communications platform provider Whispir Ltd (ASX: WSP).
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More reading
- Why these excellent ASX healthcare shares could be long-term market beaters
- ASX 200 jumps almost 2% today, Afterpay rises
- 2 ASX tech shares with stellar growth prospects
- Why Afterpay, ELMO, Oil Search, & Paradigm shares are racing higher
- ASX tech star ELMO Software delivers strong growth in FY 2020 despite the pandemic
James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BIGTINCAN FPO and Whispir Ltd. The Motley Fool Australia has recommended BIGTINCAN FPO, Elmo Software, Ramsay Health Care Limited, and Whispir Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post How to get rich by investing in small cap ASX shares appeared first on Motley Fool Australia.
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