Good measure

Entrepreneur, Nov, 2001 by C.J. Prince

Feeling lost in the tumultuous, unforgiving market? If you're not sure which individual stocks to keep, compare your current holdings to their respective indices.

You may be convinced to abandon individual stocks altogether in favor of index funds, which invest in the average of the stocks in a sector. The S&P MidCap 400 Index, for example, is a benchmark consisting of 400 stocks. If you own shares in an S&P 400 company (see www.advisorinsight.com for a complete listing), and the stock's value has increased by 5 percent but the index's value has grown by 20 percent in the same time, the stock is underperforming its category.

Don't be surprised if your portfolio isn't performing as well as the indices, says Frank Armstrong, president of Miami-based Investor Solutions Inc. In most cases, he says, investors would fare far better by investing in an index. "By just picking a few stocks, what you're doing is picking up an enormous load of risk," says Armstrong, "but no real additional return." Unless you just happen to buy the next Microsoft.

For a complete listing of the indices and how they're performing, check out www.indexfunds.com.