There are so many different types of stock out there that many first time investors have a hard time choosing their investments. Most simply turn to the advice of someone they trust. This isn't a bad idea, but you should also take the time to learn about the different stocks for yourself. After all, this is your money.
In part one of this series, we talked about some basic types of stocks: growth stock, value stock, speculative stock and preferred stock. Let's move to some more complex stocks. Convertible preferred stocks start off as preferred stock, but it can be converted into a common stock. Because of this, convertible preferred stock will react to the growth of the company more than a regular preferred will. A cyclical stock is paired rather closely with what is happening in our country's economy, and sometimes even in those overseas. You will see steel companies and original equipment manufacturers.
It takes a bit of financial knowledge to be able to trade in cyclical stocks. You must also take the time to watch the economic indicators. You will usually see these stocks rising with growth. If the economy isn't doing well, you won't see the earnings you desire. All of the Cap stocks stand for capitalization stocks of different sizes.
The different sizes equal different returns, in general. Micro-caps are companies with $100 million or less in revenue. Small-caps are companies with revenues between $100 million and $500 million. The majority of publicly traded companies are small-cap.
Mid-caps are those with revenues between $500 million and $3 billion, while large caps top $3 billion. Blue-chip stocks are the largest cap stocks out there. They are the top of the pile.
You have to know that all blue-chip stocks are large-cap stocks, but not all large-cap stocks are blue-chip. There are a lot of advantages to blue-chip stocks, including liquidity, earnings and staying power. You can also purchase non-U.S. stocks through American depositary receipts. Though that is probably beyond a beginner's level of investing.
When it comes to investing in stocks, the type of stock you invest in is important. Take your time in assessing what you want to get out of your investment. What type you choose depends on your financial goals and personal risk level.
Look for stocks that perform to your investment standards. If you want a lot of quick growth and don't mind the risk, perhaps you want to put some money into a speculative stock. If you want something solid that will give you a dividend no matter the future performance of the company, you might want to shop for preferred stock. The key is in knowing the pros and cons.
You have to understand the risk. And they all have risks. Remember, if you choose wisely and invest for the long haul, the stock market is an excellent place for your money to grow. All it takes is time and knowledge.
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