Stocks have been divided into different categories to make better sense of them and understand the similarities as well as differences between them. By adding different stocks to the investor portfolio, you get protected from the downsides and maintain a balanced hand.
Types Of Stocks
Four different types of stocks add diversification to a person’s stock. These are as follows:
1. Growth
2. Dividend
3. Newly issues/ IPO
4. Defensive
Growth Stocks
These are stocks that are ought for purpose of capital growth rather than for the company dividends. These are the shares of the companies with a positive flow of cash and expected earnings at an above-average rate. These are the companies that show a great increase in income, share price, and sales. Though they come at expensive prices, they are quite popular among investors due to the profitability associated with them and their optimistic futures. To get maximum return from your growth stocks, choose the ones with maximum growth prospects and hold onto them for the long term.
Dividend Stocks
Dividend stocks are also known as yield stocks. They have the dual benefit of performing well in the bull markets and protecting the investors’ interest in the bear ones. However, proper care needs to be taken when investing in these stocks to not get trapped in dividend traps. Investigate the overall stability of a company before purchasing their stocks so that you invest in a safe, stable, and profitable way.
New Issue Stocks
New Issue stocks or IPO stocks are the shares that are being offered to the public for the first time by a private company. One of the most lucrative ways of making a profit in these shares is getting allocated in the IPO. Earlier, it was difficult to get access to such investment opportunities, and applying for an IPO was considered to be an elitarian strategy. Today, with the help of technological advancements and better opportunities, a regular investor too can reap the benefits associated with these stocks.
Defensive Stocks
Last is the Defensive stocks or the non-cyclical stocks. These are the stocks that are stable even in the case of the market facing difficult times. This is because they are linked to consumer staples and commodities industries. Their success or performance is not dependant on the market economic cycles, making them best for risk-averse investors. They keep providing a constant dividend with stable earnings, no matter whether the market is in a bear or bull mode.
Conclusion
Now that you know the four different types of stocks available for you, you are better placed to build a balanced portfolio. It is important to have the good market knowledge and research the overall company you are planning to invest in to minimize your risk profile. Considering making a fresh investment in the stock market? Contact our financial advisors for more information regarding the same.
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