Bob Brinker's Marketimer

  Monday November 20, 2017

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WHAT ARE SOME DIFFERENT TYPES OF COMMON STOCK?
Learn even more about this topic with the Encyclopedia of Personal Finance™

Once you have decided to purchase common stock, your choices are just beginning! Among the numerous alternatives to choose from:

Blue chip stocks are issued by well-established companies with many years of proven success?like Du Pont, General Electric, and IBM. These tend to be pricy, lower-risk companies and are the top of the line in stocks.

Income stocks often are issued by stable companies that do not have a need to constantly reinvest in new development?for example, utilities and insurance companies. These companies have a long history of paying dividends.

Growth stocks generally are issued by young companies or small companies. Investors expect rapid growth from them?many technology companies fall into that class. Although they may pay low or no dividends, they offer the promise of quickly rising stock values.

Speculative stocks are issued by new or unknown companies and offer the prospect of large profits?at a high risk. This category includes low-priced penny stocks selling for $5 a share or less. These are extremely volatile, and some investors are lured into them by disreputable dealers with promises of high gains.

Cyclical stocks are stocks that move up or down in sync with the business cycle. Examples include the housing industry and industrial equipment companies, because these companies serve the needs of growing economies. Investors who don't mind buying and selling as the market fluctuates tend to like cyclical stocks. Individuals who prefer to hold a stock for a long time may not like them, unless they can weather ups and downs in the stock's value.

Defensive stocks are those whose prices stay stable when the market declines; some even grow. What they have in common is that they are issued by industries that naturally do well during recessions. Food and utilities companies are defensive stocks. Debt collection companies also tend to perform well when the market turns sour.

Now that we have covered the basics, it's time to look at some factors to consider when buying common stock.




LEARN EVEN MORE WITH THE ENCYCLOPEDIA OF PERSONAL FINANCE. CLICK HERE!

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