The Types of Stocks in the Stock Market

Almost everyone wants to invest in the stock market whenever he/she sees someone enjoying huge profits. However, before taking the plunge, you first need to be aware of the types of stocks in the stock market. So let us get to learn about the different types of stocks you can invest in.

Common Stock

When you hear people talking about stocks, they are usually talking about common stock, and most of the stocks are issued in this form. Common stock allows you ownership in a certain company, and you get entitled to enjoy a certain part of the company’s dividends or profits. As an investor, you also have the right to select the board members, who would supervise the important decisions made by the management.

Common stock has offered better returns than other investment classes. Together with best returns, common stock also invites the highest risks. If the company you invested in goes bankrupt, any common shareholder will not get any money, until the preferred shareholders, bondholders, and creditors are paid.

Preferred Stock

Preferred stock allows you a certain degree of ownership in your chosen company, but you cannot enjoy the same voting rights. In this case, investors generally get to enjoy a fixed dividend. This is different from the common stock, which offers variable dividend that fluctuates with the profit of the company. Unlike common stock, in preferred stock you will not generally get to enjoy the same kind of appreciation or suffer the same depreciation, and this result in overall lower returns. However, there also is a benefit of preferred stock, that is, if the company gets bankrupt, preferred shareholders are paid before common shareholders.

Blue-Chip Stocks

These are stocks of the biggest companies existing in the country. These generally are high quality companies with steady dividend payments and years of great profits. These are amongst the safest stocks you can invest in. However, as the companies are big, offers stable investments, the room for growth is not that great. This generally leads in stock prices that are steady, but the investors do not get to enjoy great upside.

Income Stocks

Income stocks are stock of big companies that offer great dividends. Elderly people, who have retired, generally buy stocks in such stable companies, as it allows them to enjoy steady income in the form of dividends. If you combine their dividend payments with the appreciation in the price of these stocks, you will see these stocks generally offer retirees more than they could enjoy by investing in bonds or any fixed income investments.

Value Stocks

Value stocks are under priced if you compare them with other companies in the market. This can be a result of financial problem or distress. It can also be due to cyclical trends and investor behavior. Value stocks have performed better than growth stocks, and thus many investors are more interested in such stocks.

Growth Stocks

Growth stocks are stocks of those companies of which profits are increasing quickly. This profit increase reflects in the growth in the stock price of the company. These companies generally reinvest the profits and very less or almost no dividends are offered to the stock owners. The reason behind them doing so is a belief that the increase in stock price would be enough to make the stockholders stay on board.

Growth companies are mostly technology related, and generally focus on design and research, or sell products. These companies mostly enjoy rapid growth. Their stock prices increases than their underlying earnings, resulting in high price/earning ratios. This might continue for sometime, but stock prices always lapses back to the mean historical price/earning average, and as a result, some investors are burned on such stocks. Even though growth stocks rise in value fast, they generally fall even faster.

These are the different types of stocks in the stock market. However, before you invest there are certain things you need to do.

Read business newspaper thoroughly – this will help you learn about management changes, financial results, company’s financial performance, expansion plans, market share of companies and so on.

Self-research and study – Even though there are many to guide you in this field, no one will take responsibility of your losses. So, self analysis and research is very important if you want to enjoy success in the stock market.

Actual trading – the best way to learn about trading is by doing it yourself. Unless you enter the market and execute your trades, you will not be able to make great profits. As you enjoy more and more experience, you will be able to take to the right decisions, and your wealth will start growing.

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