Stepping into the world of investing can be overwhelming because there’s so much to learn, from terminology to recognizing market trends. However, if you wish to succeed, you must understand the terminology. To get you started, we’ve gathered seven stock types that are worth investing in.
Preferred Stock Vs. Common Stock
Preferred and common stocks offer part ownership of a business listed on the exchange, but there are slight differences between the two. As the name suggests, the most prevalent stock is common stocks – many companies will only offer common stocks. You’re entitled to the correct share if you own a common stock and a business goes into administration. However, this will only be dished out once any other debts have been paid off.
The only real difference between preferred and common stocks is that preferred stockholders get paid before common stockholders. If there’s limited money left during administration, preferred stock owners will receive their share first.
Growth stocks are considered a higher-risk investment, especially when compared to value stocks. This type of stock is directly linked to businesses that are seeing quicker growth than any other business across the entire market.
Naturally, investors tend to put large sums of money into growth stocks because it will bring a higher profit in the future. But, unfortunately, you won’t find any dividend-paying growth stocks because all money invested goes back into developing the business.
Value stocks are listed at a relatively low price, even though their worth should be much higher. Investors typically back these value stocks because they firmly believe that market correction will lead to a profit. Typically, value stocks are long-standing companies with plenty of growth behind them.
As you may have guessed, penny stocks are extremely low-cost shares (less than $1). Unfortunately, penny stocks unfairly have a bad reputation because the businesses behind them aren’t entirely secure, meaning there’s a high risk attached to them.
If you consider investing in penny stocks, you need to conduct extensive research and be sure that the company shows promise. Do not be tricked into thinking you’re getting a great deal – these stocks are low-cost for a reason.
Blue Chip Stocks
Blue chip stocks are at the opposite end of the spectrum to penny stocks. These are secure businesses with an enormous market cap, and they’re typically seen as leaders within the industry. So if you’re thinking about Coca-Cola, Microsoft, and Disney, you’ve hit the mark.
This type of stock typically comes with dividends attached, which is more of a “Thank you” for backing us – they already have enormous wealth behind them. Because blue chip stocks are relatively rewarding, the demand is significant, and the price tag reflects this. Typically, investors like blue stocks because they’re ‘safe.’
Dividend stocks can be found in several different categories. This type of stock pays out a percentage of earnings to all shareholders. Owing to the guaranteed income, this type of investment is extremely popular. Dividend stocks are a great way to mitigate losses when the market is going through a bear period.
ESG (Environmental, Social, and Governance) stocks are reserved for businesses that positively impact the environment and practice incredible ethics. ESG stocks are rising in popularity because the world is becoming more aware of the ‘big picture’ attached to their actions.
A thorough grasp of the types of stocks outlined above will help you develop goals and build a sensible strategy.