Saturday 29 March 2008

Understanding the Different Types of Stock

The most complicated side of the stock market understands the stock market and its various types. There are several different types of stock to choose from:

Income stock is that stocks that companies that are stable issue income stocks. This implies that the company will not regularly invest a surplus of their earnings back into the company every year. As the profits not reinvested by the company they give out to the shareholders as dividend. If anyone interested to get dividend income and capital-gratitude then you must look forward to income stock.

Growth stocks: Growth stocks are issued by those companies that are looking for expansion. There is usually negligible dividend income from growth stock. The majority of mentors of stock market think about growth stocks a good choice for those looking to make a nice return over a long period. Annual returns usually run around 11% over ten years. The idea is that growth stocks will grow given time.

A value stock is a stock that has gone down in price. It is usually considered to be a good buy. Value stocks are based more on the company's assets than the earning potential. The growth of the company is not the issue at hand with a value stock. Investors buy value stocks for shares of a solid company at a good price and that in time the price will reflect the stability of the company. Then the price of the stock will go up.

Speculative stocks are like the new stocks on the block. They are the riskiest stock available. You can either make a lot of money or lose it all quite easily. You have to gauge your own risk level. These are usually brand new companies or unknown companies. This category would include all those dot-coms.

Preferred stock happens when a company issues different classes of stock. The company could have a common stock and then have a preferred stock. The preferred stock has a higher claim to company earnings, such as dividend payments. The amount of the dividend payment is fixed, unlike the common stock, and will be paid before common stocks are. If you own a preferred stock in a company that is not doing well, you will still get your fixed payment. You will also share in the assets in the case of a bankruptcy before those holding common stock will.

These are the most commonly thrown around stock types. You have probably heard of them around the water cooler at work or on the news. There are several other types of stocks that are also available, including convertible preferred stocks and blue-chip stocks. It is essential that you understand the different types of stocks when looking to invest. They all have different benefits and drawbacks. What type of stock you invest in depends on what you want to see from your investment. Are you looking for a quick way to make a lot of money or are you wanting to invest money and simply let it grow over time Ask yourself these questions when looking at what type of stock works for your financial goals.