Types of Stocks

There are many different types of stocks which can be invested in based upon your financial position, your risk comfort level, and your investment goals. Common and preferred are the two main forms of stock; however, it's also possible for companies to customize different classes of stock in any way they want.

Common stock is, well, common. When people speak about stocks, they are typically referring to this type. Common shares embody ownership in a company a claim on a part of profits. Investors get one vote per share to vote for the board members, who oversee the major decisions made by management.

Over the long term, common stock, by means of capital growth, has higher returns than almost every other investment. This higher return comes at a cost since common stocks entail the most risk.

Preferred stock represents some degree of rights in a company but typically doesn't come with the similar voting rights. With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder.

There are several types of stocks which are commonly traded in the securities market; the Blue chip stocks are stocks of companies that have stable earnings and no extensive liabilities. They have a trace of paying regular dividends, and are valued by investors looking for safety and stability. Penny stocks are low-priced, tentative, and chancy securities which are traded over-the-counter. Income stocks propose a high dividend in relation to their market price. They are mainly attractive to investors who are looking for current income that will increasingly grow over the years. Growth stocks are securities which value and yield a high return. Their takings are typically re-invested to increase the business.