4 Types of Stocks to Invest In
The type of stocks you invest in will be determined by your goals and your risk tolerance.
Before making your first investment, you need to sit down and plan out your goals and build a timeline. Do you want to take it slow and steady or do you want to have more of a high-risk high reward type approach?
Growth Stocks
Growth stocks are shares from a company that generates substantial positive returns and whose revenue and earnings are expected to increase at a faster rate than the overall market.
These stock companies typically reinvest their earnings back into the company in order to accelerate their growth and provide higher returns. Generally these cost more per share based on the expectation that they will continue to grow.
If these expectations are wrong, then the stock could see a dramatic decline resulting in a higher risk than some of the other types of stocks.
Dividend/Yield Stocks
Dividend/Yield stocks are shares of a company that pay out regular dividends. These companies are well established and pose more downside protection than a growth stock.
These shares may not increase as much/as quickly as a growth stock but will be receiving a continual payment of either cash or additional stock as a reward for being an investor.
Defensive Stocks
Defensive stocks are a bit of a middle ground. These stocks provide consistent dividends and have stable earnings regardless of the performance of the overall market.
These companies are constantly in demand so the stock will not be impacted as much as other stocks. These are great investments when we see a weakening economy or are seeing an increase in market volatility.
IPOs
IPOs (Initial Public Offering) are stocks that are newly issued. Before becoming public, the company will hire investment banks to market, gauge demand, and set an IPO price.
By issuing stock, the company is hoping to raise money that they can invest back into the business to spur growth. If the IPO price is lower than people are willing to pay for it then there could be a sharp increase in price, but the reverse is also true.
Buying an IPO gives you a unique opportunity to get in as an investor but beware, IPOs are very volatile and can move in either direction very quickly.
To wrap things up…
When looking for stocks, we can break them down into 4 different categories:
- Growth Stocks
- Dividend/Yield Stocks
- Defensive Stocks
- IPOs
Which stocks you should invest in depends on your risk profile and what your long-term and short-term goals are. More developed companies are considered a safer investment while new companies are considered riskier.
