Favoring Large Companies
(3 of 5)
Favoring Large Companies
It may be wise for new investors to focus on funds that buy stocks of large U.S. companies. Funds with a collection of large U.S. stocks may not always offer the most exciting returns, but they tend to hold up better than smaller companies when times get tough.
Things To Know
- A new investor might consider a large-blend fund that owns both types of stocks.
Consider the categories
Morningstar groups these funds, which are called large-cap funds, into three categories:
- Large value
- Large blend
- Large growth
Large-value funds own stocks that Morningstar believes are undervalued, large-growth funds buy stocks that have strong growth prospects, and large-blend funds own a combination of the two.
Which should you choose? Large-growth funds are the most volatile of the three categories, because they tend to own stocks in higher-growth, and therefore higher-risk, sectors, such as health care and technology. Large-value funds are generally less volatile but tend to perform in fits and starts, too, as they have their own pet sectors, such as financials and industrials. When these sectors do well, so will most large-value funds.
A final thought
A new investor might consider a large-blend fund that owns both types of stocks. It has exposure to all of the aforementioned sectors.