Believe it or not, there are actually a few different classifications of stocks. Okay, maybe not that surprising since there are 3 different stock exchanges and 1,000’s of stocks listed on these markets.
We’re going to break down the main classifications of stocks in order to help you become a more savvy investor.
Remember: a stock is just a sliver of ownership in a company. For the purpose of this article, “stock” and “company” are used interchangeably.
Blue chip stocks are the ace that you’re dealt in poker. These are companies that have been around for a while and consistently earn solid profits. If there was ever considered a safe bet in investing, it’d be buying blue chip stocks.
Some examples of blue chip stocks
Most of these stocks are tracked in an index called the Dow Jones. The Dow Jones tracks the 30 most influential (and generally largest) companies in the United States.
Blue chip stocks are good if you’re looking for a safe, reliable place to earn a solid return.
Initial Public Offerings (IPOs)
An Initial Public Offering (or IPO for short) is the first time that a private company’s stock is made available to the public. This is usually a very exciting time as regular investors are able to get in on the success of new companies
A few examples of recent IPOs are:
Investing in IPOs is usually a little riskier than buying blue chip stocks. This is because these companies are just releasing their private financial information for the first time. Investors dissect this information and then try to determine how to value the company. This results in volatile stock prices for the first few months at least.
IPOs are good for investors who are excited to take advantage of new technologies. There is a big potential for higher returns but there is also more risk involved than investing in more established companies.
Investing in growth stocks is essentially just investing in upcoming industries. Investors try to identify which industries will be become much bigger over the next 5-10 years and then identify companies within these industries. For example, here are a few up and coming industries:
- Marijuana – Growing, distributing, and selling.
- Robotics – Self-driving cars, healthcare advances, warehousing
- Video streaming
If you can successfully identify an up-and-coming industry and get ahead of the curve, you have the potential to make a lot of money.
Investing here is similar to investing in IPOs. There is a lot of potential for growth but also a good amount of risk. Since the industry is newer, companies are less proven. It’s not uncommon for a few early adaptors to go out of business before the market leader emerges.
Dividend stocks are for investors who care more about receiving a monthly payment and less about long-term growth. Some investors are so savvy with dividend investing that they’re able to receive monthly payments that cover their expenses. They’re essentially getting paid every month just for being a shareholder in certain companies.
A few examples of reliable dividend-paying stocks are:
This is an attractive method of investing for many people because you don’t need to worry as much about day to day fluctuations in the market. It doesn’t really matter if stocks are up or down during the month because you should be receiving roughly the same dividend payment anyway.
Penny stocks are stocks whose valuations are so low that they aren’t listed on major stock exchanges. Usually, each share is valued at under $1 (hence the name “Penny Stock”). Although you can definitely make money buying and selling penny stocks, it is usually made by day trading and not long-term investing.
We would not recommend this as a reliable place to invest because these companies are unproven. There is a high chance that you will lose money unless you’re very confident in what you’re doing. If you do decide to invest in penny stocks, definitely do your research beforehand.
We hope that you found this valuable to understand the different types of stocks and what they mean. There are more ways that you’re able to classify stocks but these are the main ones to be concerned with. If you’re interested in reading more, please subscribe below or check out the rest of our site!