- Different types of stock offer different levels of risk and potential reward as well as different requirements for investing. Although there are a myriad of different stock types to choose from, some are considered to be more lucrative or less risky than others.
- Blue-chip stocks involve the companies that have been the most continuously profitable, and they typically pay out a dividend. Some of these companies are 100 years old or older. Based on the history of these stocks, they often offer the lowest amount of risk because they have established a track record for stable earnings without extensive liabilities.
- Penny stocks are low-priced stock investments, trading for prices as high as $5 per share to a low of two cents each. These stocks are not typically traded in the major exchanges. The low price is the attractive characteristic, but these investments also bear a large amount of risk, especially for new investors.
- Growth stocks describe stocks that are expected to have a superior level of earnings. This type of stock does not typically pay dividends because the earnings are reinvested for the purpose of growth. The share price for these stocks can increase at a dramatic pace during the growth stage. Growth stocks are perceived to offer a great amount of growth, but their prices tend to fluctuate over time so there is a level of risk involved when investing in them.
- Value stocks are a type of security that is perceived to be undervalued by an investor. This is a stock that an investor feels is being traded at below its market value, and so the investor may believe that the stock has long-term growth potential based on the long-term growth of the company attached to the stock. In other words, a value stock is being traded at a lower price in relation to its basic fundamentals, including earnings, sales and dividends.
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