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Are you interested in the stock market and how you might be able to do some investing and hopefully grow your money? You might want to invest in the market but not feel like you know enough to actually do it.
Unfortunately, it’s not quite as simple as I want to buy some shares and then they go up in value and you’re rich.
There are many different types of stocks to know about and understand before throwing your money into the market.
Read on to learn about different types of stocks and what it means to buy them in the stock market.
Common Versus Preferred
One way that stocks are differentiated is called common and preferred stocks. Common stock owners:
- Own a share of the company
- Get a share in the company’s profits
- Get the right to vote as a stockholder
Common stockholders may get a dividend, although it’s not guaranteed.
Preferred stockholders often have what is referred to as bonds. These stockholders have all the same benefits as a common stockholder and also some other perks. They pay dividends and get those before a common stockholder.
Types of Stocks
Now let’s take a look at the seven stock categories.
1. Blue Chip
Blue chips stocks are from companies that generally grow slowly and they have shown dependable earnings. They are usually large companies that have continuous profit.
If a company has little financial history as a startup, they are usually considered a speculative stock. They might:
- Develop new products that are not tested
- Explore markets previously untapped
These stocks have a higher risk factor as they don’t have a proven track record. While there is a risk, there is also potential reward. If their product or idea is successful, there is the possibility of a big rate of return.
Growth stocks tend to pay low dividends to the stockholder. While the company is likely to have high earnings, the company takes the earnings and invests them back into the company.
Many investors still like growth stocks because while they might not get a dividend payment, the stocks tend to grow in value as the company grows.
Imagine a value item at the grocery store, it tends to cost less but might be just as good as a higher-priced item. The same is true for a value stock. They are undervalued, yet there is potential for growth.
This is a type of blue-chip stock that pays high dividends. They are companies that are well-established from industries like energy, finance, utilities, and natural resources. Sometimes the dividends they pay are actually a majority of the company’s earnings.
Stocks for a penny? What are penny stocks? Penny stocks cost no more than $5 a share and for as little as a few cents per share. So, they are inexpensive to buy but come with high risk. Often the stock comes from a start-up that needs to sell some stock in their company so they can make some money.
This type of stock category is economically dependent. When the economy is booming the stock does well. When the economy is struggling, they won’t do as well. They cycle with the economy.
Understanding the Different Types of Stocks
So, are you ready to choose some stocks to invest in now that you know about the different types of stocks available? Investing in the stock market is a lot about risk and reward which helps to differentiate these different types of stocks.
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