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What are the different types of stocks available in the market?
There are different types of stocks to choose in the stock market. While you do not necessarily have to be an expert on all the types of stocks available in stock market content, being able to differentiate and choose stocks is crucial to stock market investing. This article helps you to know more on:
- What re the various types of stocks available?
- What are the features of preferred stocks?
- What are the characteristics of blue chip stocks?
There are different types of stocks to choose in the stock market. While you do not necessarily have to be an expert on all the types of stocks available in stock market content, being able to differentiate and choose stocks is crucial to stock market investing. Depending on your goals and your investment, you may simply find that some stocks are better suited to your needs than others. At the very least, being able to tell the difference between preferred and common stocks can help you get started in investing.
Preferred Stocks and Common Stocks
All stocks are generally designated as preferred or common. Common stocks are stocks that offer you a bit of ownership of a company. Each common stock you have offers you a specific amount of ownership, entitles you to some dividends and allows you one vote for each share you own in electing directors or making key business decisions. Common stocks in this sense are different from debentures or bonds, which are money given to a company as a loan in return for the promise of specific interest.
Preferred stock offers you preferential treatment when it comes to paying out of dividends. If the company goes bankrupt, stocks holders holding preferred equities get faster access to any assets not used towards paying debts. If you have preferred cumulative stock, your position is secure. This type of stock allows unpaid dividends to be accrued. If a company cannot pay dividends one year, your dividends accrue until the company can pay. During such period all the money owed over the previous years will be paid. Those holding preferred types of stock usually have no voting ability and these stocks only get their pre-determined dividend and not more than that. This is to offset the other advantages of preferred status.
Growth stocks are stocks of companies that are experiencing rapid growth and are expected to continue growing in the future. A company with growth stocks is generally a stable company that is experiencing larger sales as well as incurring reasonable expenses. Such a company invests money in new products. These stocks are attractive to investors since they allow investors to make money from a growing and prospering company. However, these stocks can also be a risk. These stocks are often expensive, and of course there is no guarantee that a company will continue to grow and prosper as projected.
Blue Chip Stocks
In poker, the blue chips on the table have the highest value. In the stock market, blue chip refers to companies who are considered leaders in their industries and show promises of long-term success. Blue chip companies and their stock are well-established, provide a long history of the growth, have a good reputation for dividend payout, have good quality, and usually have a very recognizable brand. In fact, these companies are the standard by which other firms in the field are judged. These companies are included in the Dow Jones industrial average, which is an index of only 30 companies that are the key leaders in their industries. IBM, McDonald's, Coca-Cola, and others are blue-chip companies you have likely heard of. If you want stocks that grow fairly readily, bear relative low risk in the long term, and pay moderate dividends, blue-chip stocks are likely for you. While these are not a deal -- the stocks tend to be the most expensive -- over years they can produce a lovely profit.
Technology stocks are stocks bought from companies that are involved in the high technology sector. For example, when you buy stock from computer or software providers or manufacturers, you are buying technology or tech stocks. Unfortunately, the term is rather vague. Some investors use the term technology stocks to refer to telecommunication stocks and biotechnology stocks, while others do not.
Speculative stocks are the riskier stocks that come from companies that are listed on the NASDAQ. There are far fewer speculative stocks on the Dow Jones or other indexes. These stocks often offer a greater chance for higher profit, but also pose a greater risk. They may also be hard to predict. These stocks are generally good only for aggressive and very confident investors who do not mind facing significant losses.
Low-Risk, Mid-Risk, and High- Risk Stocks
Some investors refer to stocks in terms of risk. The evaluations of low-risk, mid-risk and high-risk are far from precise - what one investor seeks as risky another investor may see as only somewhat risky. In general, though, penny and speculative stocks fall into the high risk category, while stocks from banks and some utilities fall into the low risk category. Those stocks which have a good history of dividend payout may be considered medium risk.
Knowing about the different types of stocks available shows you that you have many options when it comes to investing. Rather than thinking of stocks as something monolithic, you should consider all the types of stocks and select those that best meet your goals and your investment.
Small Cap Stocks
How to Find Best Small Cap Stocks?
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