Different Kinds of Stocks

Understanding the different features of stock types will help you make the correct decision when purchasing stocks. Different investors have varying goals when it comes to the subject of investing in stocks. If you’re thinking about doing a stock trade, it is important to know what kind of stock to buy. 

What are the Different Kinds of Stocks

Understanding the different features of stock types will help you make the correct decision when purchasing stocks. Different investors have varying goals when it comes to the subject of investing in stocks. If you’re thinking about doing a stock trade, it is important to know what kind of stock to buy.

Two (2) Categories of Stocks

Stocks come in two categories: Common and Preferred.

1.) Preferred Stocks

Preferred stocks are so called because holders of these stocks are paid dividends before owners of common stocks.

Having preferred stock does not give shareholders voting rights. However, dividends for these type of stocks are declared before common stocks. They will also take precedence over common stock shareholders if in case liquidity is demanded. Preferred stocks have the characteristics of both bonds and common stock. The dividends are in a fixed rate over the par value of the stock.

2.) Common Stocks

Buying common stocks means you now own equity in the company. Investors of common stock are entitled to receive dividends and get a profit from the gain in share values. Shareholders also get one vote per share in voting for the board members. Over a long period of time, common stocks, because of capital growth, will yield higher returns than any other investment type. This high return also comes at a price of high risk. If in case the company declares bankruptcy, the common shareholders will not receive any money until the creditors, bondholders, and preferred shareholders are paid.

Common Stocks Categories

Most stocks, however, are common stocks, which can be subdivided into the categories below:

1.) Growth

Growth stocks are those projected to increase in value faster than the rest of the market, based on their prior performance record. They may entail more risk over time but offer greater potential rewards in the end. Income stocks are those that do not fluctuate much but have a history of paying out better dividends than other stocks. This category can include both common and preferred stocks.

2.) Value Stocks

Value stocks are those that are “undervalued” by the market and can be purchased at a price lower than the underlying worth of the company would suggest. The theory is that when the market “comes to its senses,” the owner of such a stock would stand to make a lot of money.

3.) Blue Chip Stocks 

Blue chip stocks are one of the most secure type of stocks available. These stocks come from companies which are profitable, stable, and well-established. Because of the large size of the companies, there is usually no potential for a high growth rate in share price, so most of these stocks give returns in the form of dividends. However, it is possible to earn from these stocks in capital gains during a bear market, when all stock prices are depressed, because eventually the regular price of the stock will return and possibly even higher. Companies that offer this type of stock usually have minimal fluctuations in price as compared to other types of stocks.

For investors who are looking for a certain form of security where earning dividends may be a source of income, blue chip stocks may be the most preferable.

Blue-chip stocks are those that have performed well for a long enough period of time that they are considered fairly stable investments. They may not grow as rapidly as growth stocks or pay as well as income stocks, but they can be depended upon for steady growth or steady income. They are not, however, immune from the fortunes of the market.

4.) Defensive Stocks

Defensive stocks are shares in companies whose products and services people buy, no matter what the economy is doing. They include the stocks of food and beverage companies, pharmaceutical companies and utilities (among others).

5.) Cyclical Stocks

Cyclical stocks, in contrast, rise and fall with the economy. They include stocks in such industries as airlines, chemicals, home building and steel manufacturers.

6.) Penny Stocks

This is a very low priced type of stock which is often traded over the counter. It has prices of not more than $5 per share to make it affordable to most investors. However, penny stocks carry some of the highest risks and are only suitable to investors with a higher risk appetite. 

7.) Speculative Stocks

Speculative stocks include the offerings of young companies with new technologies and older companies with new executive talent. They draw investors looking for something new or a way to beat the market. The performance of these stocks is especially unpredictable, and they are sometimes considered to be a high-risk investment.

The current Market Crash is OBVIOUSLY not good for the global economy. However, long term investors are seeing opportunity of a lifetime. As they say - "When there's Crisis, There's Opportunity"!

"Buying Low, Selling High" - This is how Billionaires build & create massive wealth in the stock market during downturns!

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Risk Warning

Trading in the financial markets (including trading on margin) provides a wide range of opportunities and enables investors who are ready to take risks to make high profits. However, it carries a potentially high level of risk of loss at the same time. You should never invest money that you cannot afford to lose. Therefore, prior to trading you should take into careful consideration whether such operations are suitable for you in terms of your level of knowledge and financial situation. Your due diligence and education on Trading & Investments is therefore highly recommended.

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