Change Your Stock Mix
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Change Your Stock Mix
Most investors build portfolios around a core of large-company stocks or funds. You can heighten your performance (and volatility, of course) by exploring the following options.
Things To Know
- Companies that are growing at a decent rate should outperform those companies that are growing at a slower rate.
Mid- and small-company stocks
Some studies suggest that, over very long time periods, smaller-company stocks return more than larger-company stocks. That’s because smaller companies are usually growing faster than larger companies, and stock prices (and thereby returns) usually keep pace with growth. The faster the growth, says theory, the higher the return.
Growth stocks
Tilting the large-company portion of your portfolio toward growth stocks may also alter its performance. This occurs for the same reason that smaller companies can add oomph: Over time, a stock’s price follows its earnings. As a result, companies that are growing at a decent rate should, theoretically at least, outperform those companies that are growing at a slower rate.
Where to find more information
You can find ideas for these investments by using online screening tools such as those offered by Morningstar. Analyst recommendations are also a good source.