Many people think a stock is a stock is a stock. But actually, there are several different kinds, and you need to know how to tell them apart.
Here are five types ofto know about before you invest.
Common stock is the most popular kind of stock. Its most prominent characteristic is that it entitles the shareholder to vote on corporate matters, such as whether the company should acquire another company, who the board members should be, and other big decisions. (Typically, the shareholder gets one vote for every share he or she owns.)
Common stock also often comes with pre-emptive rights, which means the shareholder has a "right of first refusal," or first dibs on buying any new stock the company issues.
Perhaps the most well-known attribute, however, is that common stockholders are last in line for getting their money back. If the company goes belly-up and has to sell its assets, the first goes to pay off lenders, preferred stockholders, employees and lawyers. The shareholders get whatever is left (which is usually nothing, or just a few pennies for every dollar they invested).
This pecking order is why preferred stock exists. Although preferred stock owners don't usually have voting rights, they usually receive steady, guaranteed dividends, and their claim to the company's assets outranks the common stockholders' claims. As a result, preferred bonds, which means you'll have to consider how bonds trade when .often behave similarly to
Preferred stock is a good alternative for risk-averse investors wanting to buy equities. In general, they are less volatile than common stock and provide a better stream of . Most preferred shares are also callable, meaning the can redeem the at any time, so they provide investors with more options than common shares.
"Blue-chip stock" sounds flashy, but the phrase is just slang forfrom companies that are nationally recognized, older and (usually) financially sound. IBM, AT&T, General Electric, Coca-Cola and DuPont are examples. The comes from blue poker chips, which have the highest value in the game.
Blue-chip companies have several other characteristics besides age and brand name:
- They are usually large companies.
- They generally sell widely used products or services.
- They perform relatively well during economic downturns.
- They have records of long-term, stable growth.
- They usually pay regular dividends, and those dividends usually grow over time.
- They are usually very creditworthy.
People often assume blue-chip investments because they tend to consistent returns. However, higher stock prices and lower yields generally balance this perceived lower risk.are good long-term
Many people regard the performance of blue-chip market, which is one reason the Dow Jones industrial average is the most popular list of blue-chip stocks.as proxies for the performance of the broader
Growth stocks are fast-growing, young companies. Their values usually jump around more than blue-chip stocks, so conservative investors tend to avoid growth stocks. Tech cash into their businesses and rely heavily on research and development of products that can be very lucrative (but can quickly become outdated).are generally good examples of growth stocks -- they tend to reinvest all excess
Penny pink sheets or on foreign exchanges in low volumes rather than on major American exchanges. Typically, they trade for less than $5 per share., also called micro-caps, are extremely speculative that have small market capitalizations and trade on the over-the-counter bulletin board (OTCBB), the
Penny stocks don't trade as often as or in quantities that larger liquid and thus more susceptible to bigger changes in price. That's both the trouble and the temptation; after all, when you're talking about a 50-cent stock, a 50-cent increase means doubling your money.do, which means they're much less
It can be hard to understand a penny stock's company sales, products, management, profit and costs. Though companies with less than $10 million in assets generally do not have to file reports with the Securities and Exchange Commission, some penny stock companies voluntarily register with the SEC, and that is generally a good sign.
When an OTCBB company fails to file its financial reports on time to either the SEC or its banking or insurance regulator, however, the Financial Industry Regulatory Authority (FINRA) tacks the letter "E" onto the end of the ticker symbol. Also, investors should ask their broker-dealers for the "Rule 15c2-11" file on their companies, which contain important information.
Fraud is also a major concern. Pump-and-dump schemes and boiler-room tactics are the biggest of those concerns. Fraudsters also play on ignorance, arguing, for example, that a particular company is "a Nasdaq company" because its penny stock is listed on the OTCBB, which is overseen by FINRA.
The stocks, and their classifications largely depend on the rights they confer on the holder. Investors evaluate these categories based on their investment objectives, and they look for stocks that meet those objectives.Answer: If you own one, 100 or 1 million shares of stock in a company, you're an owner of that company. But there are a number of different kinds of
It's important to common stocks and growth stocks.that a company's stock can fall into more than one category. For example, blue-chip stocks can also be
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