There are many different kinds of stock investments. The method an investor chooses can depend on many things, including potential growth, risk, and personal preferences for the type of company to invest in. The most common situation is for an investor to purchase shares in a fund that contains a mix of several types of stocks. This helps to ensure that the fund will continue to make money even if some of the stocks don’t do well.
Growth stocks are a category of stocks that are expected to show a significant increase in value, causing them to yield a high level of return on the initial investment. Their rate of growth exceeds the market average. Growth stock companies often reinvest profits instead of paying dividends to shareholders, which increases the net worth of the company.
Value stocks are those that investors often feel are undervalued. The companies that issue these stocks may be experiencing slow growth or short-term problems. Investors who buy value stocks feel that the problems that have caused stock prices to be low are temporary, and that the company will experience substantial growth in the future.
Blue chip stocks are generally considered to be among the best stocks for investors to buy. The companies issuing these stocks are solid, with a long-term history of stability. They normally pay dividends to investors and show reasonable growth over time. Such stocks are considered to be a safe investment.
Income stocks pay a dividend that is high in comparison to the cost of the stock. Investors seeking a hedge against inflation often choose this type of stock. These stocks come from companies that have consistent revenue sources, and represent a more conservative type of investment than some other types.
Penny stocks are stocks that cost $5 or less per share and are normally issued by small companies and companies that are relatively new. However, penny stocks often fail, which can result in a loss of the entire investment amount.
- Comstock/Comstock/Getty Images