Stocks are essentially partial ownership in a company. When you buy shares, you are buying a small piece of the company itself. Depending on the type of company, its size, and a variety of other factors, a stock may be classified a certain way. There are quite a few categories of common stocks, but most fall into one of just a few larger categories.
Established Growth Stocks
Established growth stocks are great because you are essentially investing in a company that has taken root and is performing consistently in the marketplace. The company is stable, but there is room for growth, so you will not pay as much as you would for stock in a mega-company that is enjoying record profits and massive earnings. The downside is that earnings for companies that offer established growth stocks are typically reinvested in the company, so you won’t see the money as dividends, but you are investing in the potential for capital gains down the road.
Blue Chip Stocks
Blue chip stocks are those offered by the biggest companies on the planet – think Wal-Mart or General Motors. The cost is higher, and there is not much room for growth since the companies are so massive, but the upside is that you will enjoy consistent, low-risk returns on your money. Blue chip stocks pay divideds to those who invest in the companies consistently, so although the returns won’t be the greatest, they’re the closest to guaranteed that the stock market has to offer.
Public works companies offer utility stocks. Water and power companies sell stock, and there are many advantages to investing in utilities. The main advantage is that the competition is almost nonexistent for utilities. For instance, it’s highly likely that you only have one option when it comes to choosing the company that keeps you lights on. Since utilities have a near-monopoly in the marketplace, they are low-risk, safe investments to make. However, since utilities are so highly regulated, the return on investment is low.
Emerging Growth Stocks
Emerging growth stocks are risky, but the risk is sometimes worth the reward. Since the companies offering these kinds of stocks are new and still establishing themselves, there is greater risk and they will not have the capital to pay dividends to investors. On the other hand, these kinds of stocks can be very fruitful if a start-up company takes off and you happen to buy stock when the company is still on the ground floor.
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