If you're like many owners of small businesses, you probably buy stocks the same way you run your company. You like innovators and new ideas. You like things to be a little edgy. But as our small-business asset allocator makes clear, the last thing your portfolio needs is more direct ownership of risky, small companies. Your own company provides more than enough exposure in that regard.

Does this mean you have to settle for a bunch of big, boring, old-line industrial companies? Not necessarily. At least two dozen public companies are serving customers that are mostly small, private businesses. When you buy those stocks, you get a direct play on the small-business sector along with the safety of a large company. What's more, you get built-in diversity, because they have thousands or even millions of customers in various different industries. That's an important difference when you consider how common it is for small firms to fail; if you buy the wrong one, the return on your whole portfolio can be ruined. By contrast, if a company such as Staples loses one of its thousands of small-business clients, it's no big tragedy--at least not for Staples and its shareholders.

There's a strong case to be made for such stocks. The small-business sector that they serve includes 22 million companies and firms. Collectively, these firms account for over half of U.S. gross domestic product, and they're generally credited with creating most new jobs and cutting-edge products. With that kind of growth, it's no wonder that an array of big companies are rushing to serve them, including payroll processors, staffing agencies, and other outsourcers, plus specialty lenders and office superstores.

The returns aren't too shabby, either. Among the two dozen "pure plays" on small business that we found, seven had lengthy track records. As a group, those seven veterans posted an annualized return of 30% for the five years ended May 29--eight percentage points better than the Standard & Poor's 500-stock index. Among the newer companies, only five trailed the market since going public.

Some of Wall Street's heaviest hitters have caught on to the small-business game. They're snapping up shares in national companies that cater to the smallest outfits--those with 20 or fewer employees, which make up 90% of the sector. "Brand matters in that world," says Brian D. Finn, a principal at Clayton, Dubilier & Rice, which controls the privately held Kinko's Corp. copying chain and has taken a $270 million stake in U.S. Office Products, the publicly traded parent of Mail Boxes Etc.

Even if you're accustomed to risk, the group still should be approached with caution. Some of these small-business companies routinely fetch price-earnings ratios of 40 to 50. That should make you wonder whether f their growth is sustainable, especially if a recession hits. The ansswer: Small private firms are likely to be hurt first and worst by any downturn, says David T. Kresge, chief economist at Dun & Bradstreet, which maintains the world's biggest database on such companies. Eventually, he says, suppliers would feel the pain, too. And even in good times, notes Randall E. Haase, manager of the Alliance Quasar Fund, some outsourcers that do relatively simple tasks will last only until clients figure out how to do the jobs themselves. The message: If you own one of these stocks, tuck it into the aggressive portion of your portfolio allocation and don't overdo it.

What would the prototypical small-business investment look like? Try Rochester (N.Y.)-based Paychex Inc. It's huge (market cap of $6 billion), but it thrives on small clients (the average size is 14 employees). It's an outsourcer of payroll and administrative tasks, but its job is notoriously complex and time-consuming for business owners to do themselves. And it does an essential task (payroll and benefits processing, which are notoriously complex and time-consuming). It usually sells at lofty valuations, but those are backed up by a long record of growth extending back into the 1980s; earnings have been up every year since 1990.

For other plays on small business, look into the following companies. Note that this list doesn't imply endorsement. Use what you know as a business owner to check them out first--just like you would in any other business deal.

Business Services

Century Business Services 	CBIZ
Paychex 		        PAYX

Employment Administrators (PEOs)

Vincam Group			VCAM
Team America 			TMAM
Staff Leasing			STFF
Administaff			ASF

Office Supplies

Office Depot			ODP
Office Max			OMX
Staples				SPLS
U.S. Office Products		OFIS
New England Business Service	NEB

Finance Companies

Allied Capital			ALLC		
Sirrom Capital			SIR
Finova Group			FNV
Equus II			EQS
Capital Southwest Corp.		CSWC
Capital Factors Holdings	CAPF
PMC Commercial Trust		PCC
Medallion Financial		TAXI
First Sierra Financial		FSFH