Course 106: Core vs. Noncore Investments
What about Core Stocks?
In this course
1 Introduction
2 What Makes a Core Mutual Fund?
3 What about Core Stocks?
4 How Big Your Core Should Be

If you're more into stock investing, your core should be made up of stable, blue-chip companies. As with funds, big and boring is the key to a core investment.

Great core stocks share a handful of qualities. For starters, they're profitable, consistently earning great returns on the money (or capital) shareholders have invested. The way we measure return on capital for companies is return on equity, or ROE. It's easy for a company to generate a large ROE in one year, though. Core holdings offer impressive ROEs year in and year out.

Core stocks are reliable growers. They may not be growing at the same pace that a new company is. But their earnings are predictable year in and year out, and they may even pay out earnings to shareholders in the form of a dividend.

Finally, core companies are also financially healthy. In other words, they don't take on a lot of debt. Moreover, they generate gobs of free cash flow, or cash flow after spending.

You can find many great core stocks among Morningstar's classic-growth stock type (particularly those that Morningstar has also rated as having "wide" economic moats, which is how we designate firms that have sustainable competitive advantages). These types of companies have mature and solidly profitable businesses. You can learn more about classic-growth stocks on

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