When it comes to investing, stocks are one of the most popular options. But what exactly are stocks? And what are the different types of stocks? This article will provide a comprehensive guide to the different types of stocks, including common stocks, preferred shares, large cap stocks, mid-cap stocks, small cap stocks, domestic stocks, international stocks, growing stocks, and value stocks. Common stocks are the most basic type of stock. When you own common stock, you have the right to vote on board members and other corporate matters at a company's annual meeting.
Generally, one share equals one vote. Common stock can offer tremendous gains from price appreciation if the company performs well. Some common stocks also pay regular dividends, but payments are never guaranteed. The downside is that common shareholders are the last in line to be reimbursed if the company goes bankrupt.
Preferred shares offer some of the advantages of both common stocks and bonds in a single security. Preferred shares pay their holders guaranteed dividends, in addition to the possibility of price appreciation. Preferred shareholders are also more likely to receive some form of compensation if the company becomes insolvent. However, preferred shareholders do not have the right to vote.
Some companies choose to issue multiple classes of shares. These stock classes are indicated by letters, such as class A shares and class B shares. The most common reason a company issues different classes of shares is to give key investors greater control over the company's affairs. Alphabet Inc., for example, has three classes of stock: class A (GOOGL), class B (GOOG), and class C (GOOGL).
Class A has one vote per share while class B has 10 votes per share and class C has no voting rights. Large cap stocks are well-established companies with a large market capitalization. They have a long successful track record of generating reliable profits and being leaders within their industry or sector. The downside is that companies of this size grow much more slowly than newer and smaller companies, so investors shouldn't expect excessive returns when investing in large cap stocks. Mid-cap stocks may offer the potential for growth as they expand their share in the markets in which they operate. In addition, they are often the target of mergers or acquisitions by large capitalization companies.
Small-cap stocks offer investors tremendous growth opportunities and are made up of many future mid-cap and large cap companies. However, these stocks are among the riskiest investment options as small-cap stocks experience greater market volatility. Growing stocks are companies that are expanding their revenues, profits, stock prices, or cash flows at a faster rate than the overall market. The goal when investing in growing stocks is to see strong price appreciation over time. Growing companies tend to reinvest their profits in the business and may not pay dividends. Value stocks trade at a discount from what a company's performance might otherwise indicate and tend to have more attractive valuations than the general market.
Securities investors try to discover companies in this category and buy their shares in hopes that the rest of the market will realize their true value. Front-line stocks are well-established companies that have a large market capitalization. Conservative investors could highlight their portfolio with front-line stocks, especially during periods of uncertainty. Income stocks generate most of their returns as dividends and adapt to risk-averse investors seeking regular income by paying dividends. Investors can track the value of income stocks by adding the SPDR Portfolio S&P 500 Value (SPYV) ETF to their watchlist. Stocks can be an excellent way to diversify your portfolio and generate returns over time. It's important to understand all your options when it comes to investing in stocks so you can make an informed decision about which type is right for you.