The stock market is a mysterious beast and can require a lot of research to fully identify the best investments. We give a breakdown guide of the different types of stocks and which ones are worth investing in according to your finances.
Blue chip stocks equate to an Olympic gold medal in the stock market for large and well-established companies with a consistent profit. Blue chip stocks are the most expensive stocks per share but translates into a low-risk, high-reward situation that nearly guarantees a good investment return.
Another dependable option is income stocks with consistent pay and growing dividends despite fluctuations in the market. Income stocks offer steady and regular income in the form of dividends that grows overtime with little risk factors.
Growth stocks differ from income stocks because of higher volatility and risks according to their performance. This form of stock is anticipated to grow at a rate above average of the market but still has a higher level of risk because these stocks typically don’t pay dividends.
If you’re looking for growing dividends, you might want to research defensive stocks that pay a constant dividend that isn’t based on market performance for a lower risk stock option. With this type of stock, there is a constant demand for the company’s products and tends to be more stable in various stages of the business cycle.
Cyclical stocks are considered a higher risk investment as the value is affected by changes in the overall economy that can be highly unpredictable. The value of cyclical stocks follows cycles of the economy good or bad through recovery, expansion, recession, and peak.
Companies with cyclical stocks are traditionally selling consumer discretionary items that consumers buying in a booming economy but spend less during a recession. Cyclical stocks are typically held by companies including restaurant, car manufacturers, hotels, airlines, clothing stores, furniture retailers, and more.
The final type of stock is the penny stocks that are defined by their value that is typically under $5 per share but are considered one of the highest risk stocks to invest in. Penny stocks are offered traditionally by smaller companies and are traded infrequently resulting in a lack of liquidity or ready buyers.
The inconsistency with penny stocks translates to high risk as investors may find it difficult to sell stock due a lack of buyers at a given time and the low liquidity rate makes it difficult for investors to find a price that accurately reflects the market.
The research for this article was sourced from Investopedia, an excellent source for accredited financial stats. Do you think you’ll invest in the stock market and which type of stock interests you?
