When it comes to investing, stocks are one of the most popular options. But what exactly are stocks? Stocks are shares of companies that are for sale. Companies issue different classes of shares, but the most common type is common stock. Common stock gives shareholders the right to vote on board members and other corporate matters at a company's annual meeting.
Generally, one share equals one vote. Preferred shares offer some of the advantages of common stocks and bonds in a single security. They pay their holders guaranteed dividends, in addition to the possibility of price appreciation, as is the case with common shares. When investment professionals talk about stocks, they are almost always referring to four main types: growing stocks, large cap stocks, mid-cap stocks, and small-cap stocks.
Growing stocks are companies that are expanding their revenues, profits, stock prices, or cash flows at a faster rate than the overall market. Large cap stocks are well-established companies with a large market capitalization. Mid-cap stocks may offer the potential for growth as they expand their share in the markets in which they operate. Small-cap stocks offer investors tremendous growth opportunities, and the small-cap market is made up of many future mid-cap and large cap companies.
Value stocks trade at a discount from what a company's performance might otherwise indicate, and they tend to have more attractive valuations than the general market. Front-line stocks are well-established companies that have a large market capitalization and have a long successful track record of generating reliable profits and being leaders within their industry or sector. Income stocks adapt to risk-averse investors seeking regular income by paying dividends. When it comes to investing in stocks, it's important to understand the different types available and how they can fit into your portfolio.
Growing stocks can offer potential for growth but also come with greater volatility. Large cap stocks may not offer as much potential for growth but can provide stability and reliability. Mid-cap and small-cap stocks can offer potential for growth but also come with greater risk. Value stocks can be attractive investments due to their attractive valuations but may not offer as much potential for growth as other types of stocks.
Front-line stocks can provide stability and reliability while income stocks can provide regular income through dividends.
