If you are looking to start investing in stocks, now is your chance. The stock market is on fire right now, with two of the largest stock indexes, the S&P 500 and Dow Jones, just hitting record highs.
The best part – the momentum doesn’t look to be slowing down anytime soon. However, not every stock is the same, and to find the best investment stocks, it’s essential to know the different types that exist.
If you are looking to become a smart investor, keep reading this guide and learn the different types of stocks that you can buy for smart investing opportunities.
1. Preferred Vs. Common Stock
There are essentially two types of shares that investors can purchase, including preferred and common shares. They both share similar qualities, such as both are representing ownership in the company, and you can use both to grow your wealth.
However, there are a few key differences in them as well. First, preferred stockholders receive a fixed dividend amount, whereas common stockholders can receive a dividend, but it’s not guaranteed. Secondly, preferred stockholders don’t receive the right to vote like common stockholders.
Investors can purchase both types of stocks through an IPO. You can also opt to invest in a mini IPO to get in on the ground floor of some of the most innovative companies. In fact, if you bought the IPO’s in 2020, your portfolio would have been up nearly 28%, compared to about 15% in the S&P 500.
2. Large, Mid, or Small Cap
You should also understand the different sizes of publicly listed companies. The sizes are as follows:
- Small-cap: 250 million – 2 billion
- Mid-cap: 2 billion – 10 billion
- Large-cap: 10 billion +
Market capitalization is a common metric to show the size of an investment. You can calculate it by taking the number of outstanding shares and multiplying it by the current share price.
3. Growth vs. Value
One of the best ways to become a smart investor is to develop an investment plan. An investment plan will include the types of stocks you will invest in. The two most common types of stocks are:
- Growth and ,
- Value
Growth stocks are companies that are growing their earnings at a rapid pace. In contrast, value stocks are currently trading at a discount when compared to their book value.
To find the best growth stocks, investors should look for higher than average earnings growth. Finding value stocks comes down to looking for opportunities where the stock’s fundamentals (Revenue, earnings growth, etc.) are improving, but the stock price doesn’t appear to be reflecting the changes.
4. Dividend Stocks
The last thing you should know about when it comes to the different types of stocks is whether the companies pay dividends to shareholders or not. Dividends are a portion of the company’s earnings that gets paid out to investors on a specific date when the company performs well.
Dividends may not seem like a significant amount of money at first, but they can compound over time when they are reinvested.
The Best Types of Stocks for Your Portfolio
To find the best types of stocks for your portfolio, you must first assess your investment goals. Are you just starting and looking to risk more, or are you near retirement and need to protect your account from any losses? These are questions you are going to need to ask yourself before coming up with an investment plan.
To learn more about investing and different ways to grow your wealth, check out the rest of our blog!