Investors buy stocks and become shareholders of the company. Investing in stocks has become a form of extra source of income, but one must be well aware of the risks linked with it. Novice investors can make a profit and get consistent returns but keep in mind that there are different types of stocks in the market. After knowing, develop an investment strategy that would meet all your needs, financial goals, and risk appetite.
So, if you are a novice investor and wish to invest, you should get enrolled in the best stock market institute to understand the stock market’s functionality. Many institutes are available in the market, but The Thought Tree is best among them as they provide mentorship and guidance to their students. They also provide live trading practice to help the students to understand how the market works.
Different Types of Stocks
1. Common Stock
If you are a novice investor and on the lookout for purchasing some stocks, you can invest in common stock. As the name says, it is the most common type of stock. By investing in common stock, you get to have a share in the company’s profits and also the right to vote. Common stock owners can also get dividends (a payment made by the company to stock owners every day), but the dividends are kept changing and are not guaranteed.
2. Preferred Stock
Preferred stocks are securities that showcase ownership in a company and get a share of the company’s assets and earnings. It generally pays investors a fixed dividend, and preferred stock investors have an advantage that is the dividends are paid to preferred stock investors before common stock investors.
Preferred stock prices have less volatility than common stock prices, and it means that the shares are not going to lose value and not going to get more value. All in all, the preferred stock should be opted for by investors who want to earn income instead of the growth in the long run.
3. Hybrid Stocks
Hybrid Stocks are preferred stocks; however, there is an option to convert into common stocks at a certain time. Hybrid stocks are also called convertible preferred shares. They are a hybrid of common and preferred stocks, so they might or may not have voting rights.
4. Growth Stocks
Growth stocks generally have a huge market capitalization. The formula of Market Capitalization is the stock price, which is multiplied by the number of outstanding shares. These stocks have good earnings and business growth. The stock price changes each year quickly, and although there are many risks associated with them for that reason.
5. Income Stocks
Income stock offers high dividend yields and is one of the best stocks available. These stocks are less volatile, and the stock price might not increase each year. But, in this, you will generally get more dividend payouts. Income stocks a best if you want to have profile diversification.
Stocks also get classified as per the total worth of all the stocks combined, known as market capitalization. Companies with huge market capitalization are called large-cap stocks, while stocks with less market capitalization are known as mid-cap stocks and small-cap stocks.
6. Small-Cap Stocks
Small-cap stocks have a market capitalization of less than $1 billion. But for that reason, market capitalization investors might get above-average returns. When a new company is made public via an initial public offering (IPO), stocks are available to be purchased first. It’s a possibility that the company is a small-cap stock.
7. Mid-Cap Stocks
Mid-cap stocks have a market capitalization between $1 billion and $5 billion. It will help stabilize your profile linked with small-cap and large-cap companies.
8. Large-Cap Stocks
Large-cap stocks have a market capitalization value of more than $5 billion. These stocks are not that volatile and are much safer in investments.
9. Penny Stocks
Penny stocks are also called micro-cap stocks because of their low price. A penny stock is traded at less than $5 of each share. People use penny stocks to make quick money in the stock market, and you should know when to enter and exit the stock market at the right time. Penny stocks can be risky if the company is not well known; however, if the company is successful, the investment can get you good returns.
10. Blue-Chip Stocks
Blue-chip stocks are the best in the trading world and have companies from certain sectors that have captured attention. These stocks generally don’t offer the biggest returns, but their security is why they favour investors with a low-risk appetite. Blue-chip stocks are usually large-cap stocks.
11. Cyclical Stocks
Cyclical stocks keep an eye on the market and the latest trends. The profits made and the financial performance are linked with the economy’s circumstances. These stocks are not good for growth in the long run.
12. Defensive Stocks
Defensive stocks and cyclical stocks contradict each other. These stocks keep enduring and also when the economy comes crashing down. People use defensive stocks to earn by placing funds during a financial crisis.
To sum it all up, it is suggested to understand the different types of stocks clearly and then start investing. Research about the company and invest your money wisely.
In this article, we discussed the different types of stocks in the market. Before investing, you know your risk appetite, diversify your profile, research, and know your investments.