This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

If Big Stocks Let You Down, Think Small

An index-based approach is more desirable, especially for the average investor, Smith says.

"There's just no way that the layperson or person on the street could pick a small-cap stock every single time that would be a winner," he says. "You run the risk of losing everything, but you also have the potential of gaining everything."

Investing in an index avoids tease highs and lows to find a safe, comfortable return in the middle. As Smith puts it, "the turtle wins the race."

"A lot of people think that small-cap stocks are like Billy's Bake Shop, with three employees, and he's doing good if he makes his rent payment," Smith says. "But that's not a small cap. That might not even be a micro-cap."

Ways for retail investors to add small caps to their portfolio include iShares' S&P Small Cap 600 Value Index Fund (VTI). Smith recommends a look at the Vanguard Total Stock Market ETF VTI for those who are unsure of a proper allocation. Its mix of large, mid and small caps allows you to "grab some of that small-cap exposure at a cost of less than 20 basis points," he says.

Vanguard also offers "completion indexes" of small and midcap stocks that complement large-cap holdings, such as the Vanguard Extended Market ETF (VXF).

Gunderson stresses that one shouldn't necessarily avoid large-cap stocks completely. There are still good buys to be had. It is up to investors, however, to research them, and not just go with names that resonate.

"You can find the best large caps of today. You don't have to necessarily go down to the small cap," he says. "For instance, Caterpillar (CAT - Get Report) is one of the most phenomenal large caps in the market today ... and it is not that expensive. Over the last 10 years, the market has gone nowhere, it is flat. But Caterpillar has averaged 20% a year in returns during that same time. Wal-Mart (WMT - Get Report) has gone nowhere for 10 years, yet Dollar Tree was up 60% in 2008, even at the height of the recession."

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.


3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AZO $785.42 0.00%
CAT $74.24 0.00%
CSCO $26.44 0.00%
DLTR $80.61 0.00%
GE $30.07 0.00%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs