When the economy lags, small-company stocks do, too. Small companies are less likely than their bigger brethren to withstand declining sales. Their businesses are likely to be less diversified, and their balance sheets are usually weaker, too. Plus, investors assume that famous or gigantic companies are safer.
It thus stands to reason that when the market turns -- well ahead of the economy, don't forget -- small-company stocks will snap back more forcefully. Bentley Offutt, an independent stock analyst in Baltimore, says small companies typically have far fewer shares outstanding, and that leads to exaggerated price swings, both up and down.
With thousands to choose from, though, it's tough to point your finger at particular small-company stocks. Two mutual funds to consider are Vanguard Small-Cap Growth Index (symbol VISGX) and Wasatch Small Cap Growth (WAAEX). They complement one another, with little portfolio overlap and holdings in almost every kind of industry.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The Vanguard offering tracks the MSCI Small-Cap Growth Index of more than 900 stocks, including a slug of consumer, energy and technology stocks but few financials. The fund, with annual fees of 0.22%, returned an annualized 14.5% over the past five years to June 9.
Jeff Cardon has run the Wasatch fund well since 1986. He looks for companies that he thinks can generate earnings growth of 15% annually for at least five years, then patiently holds on to them. The fund, which reopened to new investors in March after being closed for seven years, returned 8% annualized over the past five years and 11% over the past ten. Its annual expense ratio is 1.19%, reasonable for this kind of fund.
-
President Trump Makes Markets Move Again: Stock Market TodayThe White House is moving ahead with plans to reshape the Federal Reserve and to buy shares in more sectors and stocks.
-
Is the ‘Pumpkin Spice Tax’ Coming for Your Fall Coffee Budget?Food Taxes Inflation pressures, tariffs, and talk of the so-called 'pumpkin spice tax' have some wondering about rising coffee prices.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
