Best-Performing Stocks: January 2021

This article provides information and education for investors. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

It's been a volatile stretch for the stock market. From the pandemic-induced sell off in early 2020 to recent record highs, the market has certainly tested investors' mettle.  But when looking for the best stocks, investors should consider long-term performance, not short-term volatility. To help with that, we've compiled the best stocks in the S&P 500, measured by 1-year performance.

Are these the best stocks to invest in right now? Not necessarily. Not only is predicting the future of even the current top-performing stocks a job the pros haven’t yet mastered, but the best stocks for your portfolio aren’t necessarily the best stocks for someone else’s portfolio.

If you're looking for the best stocks to invest in, you might also want to consider investing in stocks through index funds.

» Learn more: How to invest in index funds

Here are the best-performing stocks in the S&P 500 from the past 52 weeks:

Best stocks as of January 2021

Data is current as of January 6, 2021

The answer for many: index funds

Picking individual stocks is difficult, which is why many investors turn to index mutual funds and exchange-traded funds, which bundle many stocks together.

When individual stocks come together into a diversified portfolio via index funds, they have a lot of power: The S&P 500 index — which includes approximately 500 of the largest companies in the U.S. — has posted an average annual return of nearly 10% since 1928.

An S&P 500 index fund or ETF will aim to mirror the performance of the S&P 500 by investing in the companies that make up that index. Likewise, investors can track the DJIA with an index fund tied to that benchmark. If you want to cast a wider net, you could purchase a total stock market fund, which will hold thousands of stocks.

Within an index fund, the winners balance out the losers — and you don’t have to forecast which is which. That’s why many financial advisors think low-cost index funds and exchange-traded funds should form the basis of a long-term portfolio.

» Looking for investment research? Read our review of Morningstar

Managing expectations

Index funds won’t beat the market. They aren’t supposed to. An index fund’s goal is to match the returns posted by its benchmark — for an S&P 500 fund, that benchmark is the S&P 500. There are index funds that track a range of underlying assets, from small-cap stocks, to international stocks, bonds and commodities such as gold.

Index funds are inherently diversified, at least among the segment of the market they track. Because of that, all it takes is a few of these funds to build a well-rounded, diversified portfolio. They’re also less risky than attempting to pick a few could-be winners out of a lineup of stocks.

The downside: Some might argue they’re significantly less thrilling than chasing the current hot stocks. If you’re seeking that stock-picking rush, you might consider a happy middle ground: Dedicate a small portion of your portfolio to predicting the next big thing, and use index funds for the rest.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.