What are Types of Stock to Invest in

Stock investment is usually related to the shares that are publicly listed on an exchange. However, there are different types of stock to invest in, which cater to different needs and have varied characteristics to offer investors. The distinction between stock categories is significant for those investors who want to construct a well-diversified portfolio and make proper investment decisions. In this blog, the different types of stock will be discussed to unravel the complexities of the different stock classes and make stock investment more effective for the different investor categories.

1. Common Stock:

Common stock is ownership in a company that claims that you are a stockholder in that firm. It does not mean you owe the whole company physically, but you owe residual claims to the company’s profit and assets.

Common stockholders do not get fixed dividend payments. The dividend payments depend on the company’s profits. The decision to issue the dividend is dependent on the board of directors of the company. 

Moreover, common stockholders have the right to vote. They use their votes for different matters, such as electing the board of directors and other significant decisions. The common stock is considered riskier than the preferred stock. 

If the company performs poorly or goes bankrupt, stockholders will lose all their investment. While in preferred stock, it is not possible. 

2. Preferred stock:

In the list of types of stock to invest in, preferred stocks hold a prominent position. They offer significant benefits to stockholders over common stockholders by allowing them to get their money if the company dissolves. It contains the characteristics of both bonds and stocks. 

Preferred stock gives the stockholder more access to the company’s assets. Unlike the common stockholders, the preferred stockholders aren’t allowed to vote for the company. 

Moreover, the preferred stock can be cumulative or non-cumulative. In cumulative terms, the missed dividend payment by the company owes it to the stockholder later. The company tracks the missed payments to make up for them in the future. You can invest in JP Morgan preferred stock to get more benefits. 

In bankruptcy, JP Morgan preferred stock has a higher claim on the firm’s assets than common stock but is lower than bondholders.

3. Growth stock and value stock:

Growth stocks are the shares of the company that are expected to grow at an average rate as compared to the other companies in the market. These companies mostly reinvest their earnings to get more profits. 

There are also high risk levels in growth stocks. If the company’s growth slows down, its prices fall sharply.

On the other hand, value stocks have more stable performance than growth stocks. The value of stock prices is based on current earnings rather than future growth expectations. 

These stocks can be taken by investors who seek lower risk but still want to invest in the stock market. Investors can monitor the value of stocks by adding the SPDR portfolio S&P 500 to their watchlist.

4. IPO Stocks:

IPO stocks are the company’s stock that is issued to the public through an initial public offering. Most companies issue these types of stocks to expand their businesses, pay off debt, and provide liquidity to their existing stockholders. 

IPO stock often attracts many investors and media due to the excitement about new and potential companies entering the public market. Investing in IPO stock can be risky due to the lack of historical data for analysis. 

IPU stock can also be volatile when the investment community can’t agree on how well these new companies will do in the growth stock market and profit.

However, if the IPO’s stock goes up a lot over time, the investors who bought the stock may end up making a big profit. After going public, a company can remain classified as an IPO for two to four years. 

5. Large-Cap Stock:

Large-cap stock is basically the market cap of a company in billions of dollars. A company with $10 billion or more in market capitalization is treated as a large-cap company.

Many large-cap companies regularly pay dividends to their stockholders, which makes them different from other stocks. 

If you want to invest in large-cap stocks, you might consider purchasing an index fund that follows the big companies, like the S&P 500. Walmart, Apple, and Microsoft companies are included in these index funds. 

6. Mid-Cap Stock:

The next level of the market cap is mid-cap. It usually refers to a company with a medium market capitalization ranging from a few billion dollars to $10 billion. It is smaller than large-cap but greater than small-cap.

Mid-cap companies are typically established but are still in a phase of growth, aiming to increase their market share in the future.

You can invest in mid-cap stocks to balance potential growth with risk. Mid-cap stocks may not offer the same level of stability as large-cap stocks, but they provide higher potential growth. 

The mid-cap is often included in indices like the S&P MidCap Index and the Russell Midcap Index. These indices are used to monitor the performance of mid-cap stocks in the stock market.

7. Small-Cap Stock:

Small-cap stock companies usually have a market cap of less than $2 billion. These companies are typically in their early stages and have potential for stable growth. Many fund managers overlook small-cap stocks due to their small size and small-cap stock.

However, in reality, they provide an opportunity to identify the company, which is loaded for future growth.

It is a good option for those investors who want a long-term investment horizon and have a high risk tolerance. Small-cap stocks also carry high risk and liquidity as compared to large and mid-cap stocks.

8. ESG Stock:

ESG stock emphasizes the environment, society, and governance. This stock helps investors identify the company’s overall impact on society and the environment, along with its financial growth. 

ESG may be a company that claims to reduce carbon emissions, or it may refer to a company that manufactures the equipment for renewable energy infrastructure. 

ESG investing goes beyond avoiding bad companies. It’s about investing in companies that perform best. Different case studies show that ESG principles can lead to better profits, making them stand out from other investment approaches. 

You can approach ESG stock by adding Vanguard ESG U.S stock ETF (ESGV) to your portfolio. 

9. Blue Chip Stock:

Blue-chip stock refers to the stock of a company that has been operating successfully, has matured for years, and has a large market capitalization in the billions. These companies are leaders in their industries and often pay regular dividends to stockholders.

If you are seeking low-risk investments and regular dividends, then you should consider blue-chip stocks. The market downturn cannot affect blue-chip stocks; they tend to stabilize faster than other cheap stocks. 

For investing in blue-chip stocks, you can access companies like Intel, Walmart, IBM, and JPMorgan Chase & Co.

10. Income Stock:

Income stock, also known as dividend stock, primarily generates income for stockholders through dividend payments. Companies with these stocks have made their history by making reliable profits and becoming mature business models in their industry or sector. 

Investors who want steady income and stability in their portfolio can favor income stocks. These stocks are particularly common among conservative investors, including those who are nearing retirement and need regular cash flow from their investments. You can get income stock through the Amplify High Income ETF (YYY).

Conclusion:

In fact, all of the different types of stock to invest in are crucial for a diversified portfolio. They range from high-earning common and preferred stocks to growth, value, and income stocks, and each stock offers a specific benefit. Also, IPOs and ESG stocks are another types of stock to invest in, they provide chances for new startups and socially responsible investors. Balancing among these can ensure sustained long-term growth and stability.