Course 307: Getting More Conservative
Subdue Your Stock Mix
In this course
1 Introduction
2 Are You Being Too Aggressive?
3 Alter Your Asset Mix
4 Restrain Your Bond Mix
5 Subdue Your Stock Mix
6 Tone Down Your Foreign Mix
7 Test Drive Before You Buy

Lessen your portfolio's volatility by exploring the following options among U.S. stocks.

Very Large Companies
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.

But the faster the growth and the smaller the company, the more volatile the stock, too. So if curtailing volatility is your goal, focus the U.S. stock portion of your portfolio on the very largest companies. They may not have the same growth potential as smaller companies, but they don't have the same volatility, either.

If you are looking for a good large-company stock fund, you can find ideas by usingan online Fund Screeneror Stock Screeneror browsing analyst recommendations such as's Fund Analyst Picks, which are available to Premium Members or those taking a free trial.

Dividend-Paying Stocks
Dividend-paying stocks are often called "buffers." That's because their dividends provide a cushion in a difficult market. Although a company's stock price may fall, it will usually pay its dividend. And that dividend props up total return.

Let's take an example. Acme Cement Company's stock price falls from $100 per share to $95 per share in one year. That's a 5% loss. However, the company pays a $7.00 per-share dividend each year. At the end of the year, shareholders have a $95 share price and a $7 dividend. So they haven't really endured a 5% loss. It's really a gain, thanks to the dividend.

Dividends won't always turn losses into gains. But they can curtail volatility.

You can find potentialinvestment ideas by usingthe Morningstar Screen of High Dividend Yields.

Reasonably Priced Stocks
Companies whose stocks trade at high prices relative to their earnings, their sales, or their cash flows harbor what's called "price risk." In such cases, investors have high expectations about the futures of these companies, and are therefore willing to pay a premium for the stock.

If the earnings, sales, or cash flows of these companies don't live up to expectations, however, their stock prices can plummet.

To avoid such price dives, stick with companies whose stocks are trading at moderate prices relative to their earnings, sales, and/or cash flows.

Find ideas by using the Morningstar Screen of Low-Priced Growth Stocks.

Next: Tone Down Your Foreign Mix >>

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