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
- 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.
- 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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- Cyclical vs Non-Cyclical Stocks
- Dividend Yield Calculation and Drawbacks
- Book Value Explanation
- Dividend Payout Ratio Calculation
- Dividend Yield Explanation
- Stock Beta Value
- Operating Cash Flow Implications
- Stock Valuations - Key Interest Rates Relationship
- Price to Book Ratio Calculation
- Return on Equity Calculation and Drawbacks
- How to Benefit from Short Sellers
- Earnings per Share EPS Calculation
- PEG Ratio Calculation
- Simple Return vs Compound Annual Growth Rate Formula
- Price to Cash Flow Ratio vs Free Cash Flow
- Institutional Investors and Their Influence on Stock Trading
- Company Valuation Methods - Debt Evaluating
- Company Valuation Methods - Management Effectiveness Ratios
- Company Valuation Methods - Debt Evaluation Formulas
- Determining the Right Stock Price
- The Importance of Earnings in Evaluating Stocks
- Price to Sales Ratio Calculation
- Price to Earnings Ratio Calculation
- Cash Flow Valuation
- Calculate Return on Investment
- Relative Strength Indicator
- Non-Financial Characteristics of a Successful Stock
- Per-Share Price vs Market Cap
- Value Stocks vs Growth Stocks
- Identifying a Value Stock
- Small Cap Stocks Opportunities and Risks
- Stock Analyst Recommendations - Should We Trust Them?
- Value - Growth Stocks Comparison
- Investing in Hedge Funds: Pros and Cons
- Price to Sales Ratio (PSR) Explanation
- Funds of Hedge Funds
- Investing in Interval Funds
- How to Select a Winning Stock from a 52-Week List
- Earnings Estimates and Stock Selection