Next, focus on funds that buy stocks of large U.S. companies. Funds with a collection of stocks such as Coca-Cola KO, Procter & Gamble PG, and Wal-Mart WMT may not always offer the most exciting returns, but they tend to hold up better than smaller companies when times get tough.
Morningstar groups these funds, which are called large-cap funds, into three categories: large value, large blend, and large growth. Large-value funds own stocks that 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 suffer, so will most large-value funds.
Your best choice would be a large-blend fund that owns both types of stocks. It has exposure to a blend of the aforementioned sectors.
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