The stock market is one of the most lucrative markets that you can invest in; there are many Online Trading Benefits. Aside from the various company stocks you can choose from, there are also various industries and sectors that you can look into. In addition to that, you can choose from a wide range of stock types as Reliable Trading Solutions.
In this article, we’ve listed the different types of stocks below. Check them out!
Types of Stocks Based on Ownership
Stocks can be classified based on the ownership rights that you can get. There are two types of stocks if we use this approach, and each gives you different rights and growth potential.
When people talk about “stocks,” most of them actually refer to common stocks. The great majority of all stocks are issued as common stock. What is it?
If you buy common stocks, you buy a portion of the company. You also obtain claims on a portion of the company’s net profits. You also acquire voting rights to elect a member on that stock’s company’s Board of Directors, which is comprised of the people overseeing the business.
History has proven that common stocks have yielded higher returns than many other investments. However, this type of stock also carries risks. For one, if the company goes bankrupt, you won’t receive money until the creditors, bondholders, and preferred shareholders receive theirs.
For you to protect yourself against this risk, try to buy a variety of well-established stocks with solid financial statements plus strong earning history.
Unlike common stocks, preferred stocks do not give you the same voting powers, although it still represents some degree of ownership. If you hold preferred stocks, you will likely receive fixed dividends.
As suggested above, preferred shareholders get paid first before common stock shareholders if the company ever goes bankrupt. That’s one of its biggest advantages.
Types of Stocks Based on the Company
As you may well know, every company in the world has its own plan for growth and dividend distribution. We may also classify stocks according to these things. Check out the list below.
If you have income stocks, you receive a regular, quarterly dividend payment. Companies like this are usually well-known businesses in their industry or sector. Well-established companies like them usually have a history of strong profits and steady dividend increment.
If you’re looking for these types of stocks, better peek into publicly traded energy and utility companies.
Value stocks are stocks that are underpriced if you compare them to other similar companies in the stock market. They usually have low price-to-earnings ratio, low price-to-book ratio, and low price-to-dividend ratio.
You can imagine that this underpriced state is due to financial distress or management problems. However, reasons can also be investor sentiment and cyclical trends. But it doesn’t really matter, because value stocks have already outperformed growth stocks over several years.
These are the stocks of companies, sporting growing profits. If the company’s profits quickly increase, the company’s stock price also swells. Oftentimes, these companies reinvest their profits and sometimes pay no dividends to stock owners.
Examples of growth companies can be found in the technology sector, and many of them grow rapidly in short periods of time.
How to Choose?
When it comes to choosing, all you have to remember is this: don’t invest in something you don’t totally understand. It simply means that aside from these things that we told you, make sure that you do your own research about each stock and each company you plan to invest in.