What are the Different Types of Stocks?

What are the Different Types of Stocks ?

Understand the different types of stocks to make better choices in life

Ah, stocks! The word itself is enough to make even the bravest of investors break out in a cold sweat. But fear not, my friends! With a little bit of knowledge, you’ll be buying and selling stocks like a pro in no time. So sit back, grab a glass of your favorite beverage, and let’s dive into the world of stocks where we try to make it simple by making these stocks look like your average Joe & Jane.

Two Main Types of Stocks

Common Stock

Common stock is your party animal of the stock world. It’s the one that gets all the attention and has all the fun. When you buy common stock, you become a part-owner of the company. That means you get to share in the company’s profits, and you also get a say in important decisions, such as who gets to be the CEO.

One of the best things about common stock is the potential to earn big bucks through capital appreciation. This is when the price of the stock goes up, and you can sell it for more than you paid for it. Of course, there’s always the risk that the price will go down, too, so it’s important to do your research before investing.

Common stock also has the potential to pay dividends, which is a little bit of money the company gives you just for being a part-owner. Dividends are usually paid out quarterly, and they can be in the form of cash or additional shares of stock.

Preferred Stock

Preferred stock is like the responsible older sibling. It’s not as exciting as common stock, but it’s still a great investment. When you buy preferred stock, you become a part-owner of the company, but you don’t get to vote on important matters.

One of the preferred stock’s biggest benefits is its steady income. Preferred stock typically pays a fixed dividend, which means you know exactly how much money you’ll get and when you’ll get it. It’s like having a side job that pays you every quarter!

Another benefit of preferred stock is that it has a higher priority than common stock when it comes to getting paid in the event of a company’s bankruptcy. That means if the company goes belly up, you’ll get your dividends before the common stockholders.

Let's be more specific

Now that we’ve covered the basics, let’s dive a little deeper into the different types of stocks, based on the way that you want to look at these stocks.

Just a friendly note: when we say it depends on the way that you look at the stocks, it is because some of these stocks may overlap in terms of their types, you might find Stock XYZ as a Blue Chip type, but it can also be under the ESG type.

Based on Market Capital

Some group the kinds of stocks they want to buy according to the size of the companies’ market capital.

Large-cap Stocks

Large-cap stocks, you can say they are the big shots of the stock world. They’re stocks of well-established, large companies with a market capitalization of $10 billion or more. These companies often have a long history of stability and steady growth, making them a popular choice for conservative investors.

Mid-cap Stocks

Mid-cap stocks are the up-and-comers. They’re stocks of companies with a market capitalization of $2 billion to $10 billion. These companies are often still growing and expanding, making them a great option for investors looking for growth potential.

Small-cap Stocks

Well, small-cap stocks are like the little guys. They’re stocks of small companies with a market capitalization of less than $2 billion. These companies are often the riskiest, but also have the potential for the greatest growth. Can these little guys throw some deadly punches? That’s for you to decide.

Growth and Value

Some look at the potential of said stocks. Whether it can grow further? whether its value is misunderstood — which makes it a hidden gem? All of these are the questions they seek to answer.

Growth Stocks

They are the wild young adults of the stock world. These are young companies with a lot of potentials, but they’re not making a lot of money yet. Instead, they’re focusing on growth and expanding their operations.

Value Stocks

The bargain hunters. They look for stocks that are undervalued and have the potential to grow in the future. Think of it like buying a fixer-upper house. You know it needs some work, but with a little bit of elbow grease and some smart investments, you can turn it into a real gem.

Geographic

Another way to group your stocks is by looking at whether they are being offered in your country or offered beyond your borders.

Domestic Stocks

Domestic stocks are your hometown heroes. They’re stocks of companies based in your home country. Investing in domestic stocks is a great way to support the companies and economy of your home country.

International Stocks

The globe-trotters, they’re stocks of companies based outside of your home country. Investing in international stocks gives you exposure to the growth and success of companies in other countries and can add diversity to your portfolio.

Dividends

Some investors prefer to group their stocks by the dividends that they pay (or don’t).

Dividend Stocks

Dividend stocks are like that one steady and reliable employee who refuses lunch to make sure the team stays afloat. They’re companies that pay a portion of their profits to shareholders in the form of dividends. This is a great option for investors who are looking for a steady stream of income and don’t mind sacrificing some potential for growth.

Non-dividend Stocks

Non-dividend stocks are the free-spirits of the stock world. They don’t pay dividends, but they have the potential for high growth. Think of it like investing in a start-up company. You might not see any returns for a while, but with a little bit of luck and a lot of hard work, you could see some big returns down the road.

Economic cycle

Some companies are more susceptible to changing economic landscape than others.

Cyclical Stocks

The seasonal workers of the stock world. They’re stocks that are tied to the ups and downs of the economy. For example, a company that makes construction materials might see a boost in sales during a housing boom, but sales might slow down during a housing slump.

Non-cyclical Stocks

The year-round employees of the stock world. They’re stocks that are not tied to the ups and downs of the economy. For example, a company that sells necessities like food or healthcare products will continue to see steady sales regardless of the state of the economy.

Other Types of stocks

Blue Chip Stocks

Blue chip stocks are like the wise old grandparents of the stock world. They’ve been around for a long time, and they’re well-established companies with a strong track record. Think of companies like Coca-Cola (NYSE: KO) or Microsoft (NASDAQ: MSFT). These are the stocks that are often considered safe investments because they have a history of stability and steady growth.

Income Stocks

Much like dividend stocks, income stocks are like the trust fund babies of the stock world. They’re stocks that pay high dividends and provide a steady stream of income to their investors. This is a great option for people who are looking for a passive income and don’t mind sacrificing some potential for growth.

IPO Stocks

IPO stocks are the new kids on the block. They’re companies that have just gone public and are offering their stock for the first time. This is a high-risk, high-reward investment, so make sure you do your research before diving in. Are they worthy of your time or are those Jordans fake? Come closer and you’ll know!

ESG Stocks

ESG stocks are your environmentally conscious activists of the stock world. They’re stocks that are aligned with environmental, social, and governance (ESG) values. If you’re looking to invest in companies that are doing good for the planet and its people, ESG stocks might be a great option for you.

Penny Stocks

Penny stocks are like the high-risk, high-reward gamblers. They’re stocks that trade for less than $5 per share (in the US) and are often considered high-risk investments. But with high risk comes high reward, so if you’re feeling lucky, penny stocks might be right up your alley.

Safe Stocks

These are your conservative grandparents. They are stable, well-established companies that are considered low-risk investments. Think of companies like Coca-Cola or Microsoft. These stocks are often considered safe investments because they have a history of stability and steady growth.

Bottom Line

There you have it, folks! A quick rundown of the different types of stocks. Remember, there is no one-size-fits-all solution when it comes to investing. It’s important to do your research, understand your risk tolerance, and choose investments that align with your financial goals. Happy investing!

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None of the material above or on our website is to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument. Investors should carefully consider if the security and/or product is suitable for them in view of their entire investment portfolio. All investing involves risks, including the possible loss of money invested, and past performance does not guarantee future performance.

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