What Type of Stock Should You Buy Right Now?
If you think the stock market is only for gamblers and slick, Gordon Gekko types, think again.
There are a variety of ways that even the most fiscally conservative among us can invest our
hard-earned cash without worrying about taking out a second mortgage. Here are five categories of stock into which I’ve sunk money at some point in time.
When most people think “stocks,” this is the category they’re thinking of. Common stock is part-ownership in a public company like Apple, Starbucks or Disney. You can get in when the getting is good; you can get out when times get tough.
The primary advantage of common stock is that there’s no cap on how much money you can earn from it. The sky’s the limit. The con, however, is that if the company loses money, so do you, and if it goes belly up before you sell your shares, you lose your investment.
Another way to group stocks is by how much a company’s shares are worth in total. This is
known as its market capitalization. There are three categories: large-cap stocks, mid-cap stocks and small-cap stocks.
Of the three, large-cap stocks generally have a market capitalization in excess of $10 billion and are considered the safest expenditure because of their size. If you’re new to stocks or tend to be financially cautious, large-cap stocks are often an excellent choice. As caps get smaller, the potential for growth increases but so do the risks.
If you’re retired, or about to retire, income stocks should be on your radar. They’re a type of
dividend stock, which means that companies in which you invest will regularly pay you dividends, or a small chunk of their profits. Typically, you’ll get paid once per quarter, but some organizations pay dividends monthly.
The more successful the company is, the higher its profits are, and the bigger your dividends.
That said, seeing an increase in dividends can take time, so income stocks tend to best suit
moderate investors who are patient and content to essentially “set it and forget it.”
Stocks are also classified by investment method. Growth stocks are aimed at individuals who are interested in a stock’s potential for rapid development. These stocks can get a little dicey. Value stocks, meanwhile, are a good match for backers who want a stable, well-known company that has an established value and (usually) affordable shares.
The downside of value stocks is that — precisely because of their maturity — they typically
experience little growth because they’re simply not as volatile. As such, they’re an excellent
choice for particularly conservative investors or those who are just starting to dip their toes into the market.
This is the riskiest type of stock on my list, but it’s also the most exciting. IPO stands for “initial public offering,” which means stocks in this category either just became available or are just about to become available. Investing in an IPO is your chance to buy stock in a company from the very beginning, and if you pick a winner, the potential for growth — and returns on your investment — is enormous.
Think about it: There are people who turned chump change into millions by buying Amazon stock back in the spring of 1997. (Sadly, I am not one of them.) In short, if you can see past all the hoopla, bankrolling an IPO stock can be thrilling and rewarding.
Investing in the stock market is an excellent way to grow your resources from the comfort your home. Start off small, do your homework and get ready to turn one dollar into two.