Purchasing stock gives an investor part ownership in a company. Companies large and small offer stock to raise money for expansion, acquisitions and research. Owning stock in a company gives you a stake in a company’s earnings and assets. There are several types of stocks, some riskier than others.
Blue Chip Stocks
Blue chip stocks offer investment in nationally known companies that are well established and usually very profitable. The sound financial status of the companies and their proven track record makes blue chip stocks a relatively low-risk investment when compared to other stocks. Blue chip stocks usually pay dividends even when other stocks are performing poorly.
Growth stock companies are fast-growing firms focused on reinvesting profits into the company. The reinvestment allows companies to grow even faster and grow the price of the stock. Growth stock companies usually do not pay dividends, or pay very small dividends, because they want to reinvest profits to finance growth. People who buy growth stocks are hoping the value of the stock will increase significantly as the company grows.
Penny stocks are usually priced at less than 5 dollars a share and are not traded on the New York Stock Exchange (NYSE). They are considered high-risk investments because penny stock companies usually are smaller firms still seeking to establish themselves or recover from past problems.
Income stocks may include blue chip companies or public utilities. These stocks usually pay high dividends, and are an attractive option for people who want regular, dependable income from their investments.
Investors seeking balance to their portfolio may add some defensive stocks. Companies providing basic human needs such as grocery stores and gasoline are often identified as defensive stock companies. Some investors feel that the company’s products are so essential that the companies will achieve some measure of success if managed properly. Growth stocks may offer greater potential, but defensive stocks are also known for their reliability.
International stocks allow investments in foreign entities. Investors who are savvy and experienced may include international stocks in their portfolio. The stocks carry risk because public information about foreign companies is not always readily available. Also international stocks are sometimes affected by currency risks and political issues.
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