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.
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.
Premium Members looking for good small- and mid-cap funds can browse Morningstar's Fund Analyst Picks. (Nonmembers can sign up for a free trial to Morningstar's Premium Service.)
Stock investors can find ideas by using online screening tools, such as Morningstar.com free Stock Screener, which allows you to screen for several types of mid- and small-cap stocks. You can add more inputs to narrow the search further.
Tilting the large-company portion of your portfolio toward growth stocks may also amplify 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.
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