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Style Boxes

In Chapter 7 we discussed how equities have certain characteristics that ultimately help us to classify them so that we can get different views of our portfolio. Morningstar's style boxes help us classify stocks, bonds, and mutual funds based on their capitalization and management style. The top-left box is for large-cap value funds and the bottom-right box is for small-cap growth funds. As you can see from the two examples in Figure 11-2, you can deploy very different approaches with different resulting risk profiles. The first portfolio is fairly well balanced and of moderate risk, whereas the second portfolio is heavily weighted to small- and mid-cap funds and has greater risk. Using the Style Boxes gives us a better understanding of our overall portfolio.

Figure 11-2. Morningstar Style Boxes



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