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Pick the Best Stock Type for You

Now that you have established your financial goals and their achievement is directed over the long term, the right tools to use are stocks or/and stock mutual funds. It is true that stocks carry their risks in terms of volatile prices, but over the long term they bring returns offered by no other investment solution.

In order to ensure yourself against market downturns, investment in different stocks is recommended. Another tactic often recommended by financial advisers includes the transference of resources from stocks to bonds or money market funds as the time for your goal nears.

However, you should never overlook the negative impacts of inflation on the too conservative investment approaches.

Types of Stocks

Generally, there are two major types of stocks

  1. Preferred Stocks

    They are usually purchased because of the income they produce. They give the right of their holders of being the first to be served when dividends are paid.

  2. Common Stocks

    According to the different goals of investors the following common stocks can be distinguished:

    • Blue-Chip Stocks - famous for their safety and reliability, these stocks are preferred by investors who seek decent dividend income, some growth and have little tolerance for risk.
    • Growth Stocks - famous for their positive prospects of growing at a faster rate than the economy or the stock market. They offer a good record of growth and capital gains provision.
    • Cyclical Stocks - these stocks move in accordance with the cycles of the economy. For instance, when the economy is in recession, the cyclical stockholders will suffer the negative effects.
    • Income Stocks - famous for their relatively high dividends. They are mainly purchased by retirees and other individuals who need regular income.
    • Defensive Stocks - they are preferred in both bad and good economic times, since no matter what the economy conditions are, people will still continue to purchase goods and services.
    • Speculative Stocks - these stocks may be of a newly established company. Additionally, stocks of an old company that is about to experience some new upswing also falls in this stock category. History has shown that despite the positive expectations of most speculative stockholders, they have not achieved any spectacular returns.
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