There are 9 different types of stocks that investing beginners need to keep in mind so that you can create an investment strategy that is suitable to your needs, risk tolerance, and personal financial goals. Some of these different types of stocks to invest in can fall into a larger category. But I think it’s important for beginners to learn to invest in the stock market by knowing exactly what type of stocks you’re getting yourself into so that you can have the right expectation and the right financial plan.
Also please keep in mind that in this video, I’m covering different types of common stocks… and not preferred or unlisted stocks.
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Different Types of Stocks
Common stocks are the most appealing category of stocks because they offer a range of financial potential from current income to growth and capital gain.
The 9 different types of stocks include:
-Blue Chip stocks
– Income stocks
– Growth stocks
– Tech stocks
– Speculative Stocks
– Cyclical Stocks
– Defensive Stocks
– Small-cap stocks
– Mid-Cap stocks
How to Invest In Different Types of Stocks
When I first started investing I simply thought I can buy a stock and wait 20 years for it to grow and then get out. It turns out, there are much better ways to maximize long-term investing.
On the flip side, many traders get in and out of stocks on a daily basis to gain small income profits. By now you probably know that I’m against day trading for people who’s main job title doesn’t say “professional trader”… and if that’s what you want to become, then you’re in the wrong place.
But if you’re looking to grow your money over a longer period of time, and make your money work for you (not the other way around) then you’re in the right place.
In this video I talk about the 9 types of common stocks, advantages, and disadvantages of each type, and what type of investor each of them is for.
steps to start investing – Time Value of MoneyBut to just quickly go over it, Time Value of Money helps you calculate the amount of money you need today and the amount of return you’d need in specific time periods to reach your future goals.
Stock Type #1: Blue Chip Stocks
Predictable earnings and dividends, steady growth, high-quality stocks.
(2020) AbbVie, (ABBV), (Older) Nike, Procter & Gamble, Home Depot, IBM, McDonald’s, Boeing, Intel.
Who is it For?
Investors who want to earn higher returns than bonds, without taking too much risk.
How to Pick:
Look at stocks with yields at or above 3%. Examine how long the company has been in business. Conduct IDDA for best entry points.
Stock Type #2: Income Stocks
Have long and sustained records of paying higher-than-average dividends, relatively safe, but low growth.
American Electric Power, Duke Energy, General Mills, Altria Group.
– Some may be paying high dividends because of limited growth potential.
– Some may be subject to interest rate risk
This doesn’t mean they are not a profitable company.
Stock Type #3: Growth Stocks
Experience higher than average earnings and sales growth, pay little to no dividends, and most return from capital appreciation.
Examples: Amazon, Apple, Google, NVDA, Lockheed Martin, eBay, Micron, AMD
Who is it For?
Those who are looking for attractive capital gains rather than dividends and who are willing to take more risk
Stock Type #4: Tech Stocks
Some of the hottest stocks in 2018 and onward. Represent the technology industry and includes companies in the field of Artificial Intelligence, Big Data, semiconductors, and software. It can be blue-chip or speculative.
Examples: CSCO, MSFT, GOOG, NVDA, CLDR, AMD, HDP, INTC, MU, FB, LNKD.
Stock Type #5: Speculative Stocks
High PE’s, little to no earnings, high risk, but offer the potential for substantial price appreciation.
How to Identify:
Look for new management team taking over troubled companies, Introduction of a promising new product, hints of new discovery, or production technique etc.
Sirius XM Radio, Dreamworks Animation, Plug Power Inc., Under Armour Inc., PetMed Express
-You have to identify the big winners before the rest of the market does
Stock Type #6: Cyclical Stocks
Move with the business cycle. Earnings and overall market performance are closely linked to the general state of the economy.
Includes companies that are tied to capital equipment spending or consumer spending for big-ticket, durable items such as houses and cars.
Examples: Tesla, Alcoa, Caterpillar, Genuine Parts, Lennar, Timken
Who is it for? Investors who are willing to get in and out of trades based on the economic cycle.
Stock Type #7: Defensive Stocks
Tend to hold their own, and even do well, when the economy starts to falter. Defensive stocks are countercyclical.
Includes public utilities, industrial/ consumer goods companies producing beverages, foods, drugs at lower prices.
Example: Walmart, Extendicare
Who is it for?
Aggressive investors who tend to “park” their funds temporarily in defensive stocks while the economy remains soft or until the investment atmosphere improves.
Stock Type #8: Small-Cap Stocks
The market value of less than $1 billion, and may offer above-average returns.
Disadvantages: Some are so small that they don’t have a lot of stock outstanding. Some can be here today, gone tomorrow.
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Stock Type #9: Mid-Cap Stocks
Medium-sized stocks, generally with a market value range of $1 billion to $4-5 billion.
Examples: (2020) Chemed, Allakos,
Dick’s Sporting Goods, William-Sonoma, Hasbro (no longer medium cap)
Advantage: Offer a nice alternative to large-cap stocks without the uncertainties of the small-cap stocks
Disadvantages: Appropriate for investors who are willing to tolerate a bit more risk and volatility than large-caps
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