If you want to invest in stocks for the first time, now is the time to do it. Currently, there is a lot of excitement around the stock market, with a pair of the most significant stock indices, the S&P 500 and Dow Jones, just hitting record highs.
Although the momentum is picking up, there is no sign of slowing down anytime soon. There is one thing you have to keep in mind, not all stocks are created equal, and to find the best investment stocks, you must know the different types.
To learn more about what you can buy as an intelligent investor, keep reading this guide and understand the different types of stocks you can buy for brilliant investment opportunities if you want to become an intelligent investor.
1. Common stock vs. preferred stock
Generally, there are two types of shares that investors can purchase: preferred and common. There are many similarities between them, such as that both represent ownership of the company and can be used to grow your wealth to a certain extent.
Despite the similarities, there are also a few key differences between them. Firstly, preferred stockholders receive a fixed dividend payment, while common stockholders can receive a dividend but are not guaranteed to do so. The second reason is that preferred stockholders do not receive a right to vote like common stockholders do.
Both types of stocks can be purchased through an IPO by investors. You can also invest in a mini IPO to get in on the ground floor of some of the most innovative companies today. Looking at the S&P 500 in 2020, if you had bought the IPOs that year, you would have seen your portfolio surge by nearly 28%, as opposed to 15% for the S&P 500.
2. Capitalization: large, midsize, or small
The size of publicly listed companies is also something that you should be aware of. These are the available sizes:
- The small-cap market is defined as 250 million to 2 billion dollars
- A company with a mid-cap size of between 2 billion and 10 billion dollars
- An organization with a market capitalization above 10 billion dollars
A company’s market capitalization is a metric commonly used to measure the size of an investment. It is possible to calculate it by taking the number of outstanding shares and multiplying it by the current share price, which is the number of outstanding shares.
3. What is the difference between growth and value?
There are many ways to become an intelligent investor, but one of the best ways to do so is to develop an investment plan. Your investment plan will include a list of the types of stocks that you intend to invest in. There are two types of stores that are the most common on the market:
1. Growth and development,
2. Amount of value
It is a well-known fact that growth stocks are overgrowing regarding their earnings. When compared to the book value of a stock, value stocks are currently trading at a discount to what their book value should be.
When looking for the best growth stocks, investors should look for companies with higher earnings growth than average. When finding value stocks, you want to look for stocks whose fundamentals (revenue, earnings growth, etc.) are improving but whose stock price does not appear to reflect these changes, as the fundamentals are improving.
4. Stocks with dividends
One of the last things you should know about when it comes to the different types of stocks is whether the company pays dividends to their shareholders and, if they do, how often they do so. When a company performs well, it will spend its shareholders a portion of its earnings in the form of dividends on a specific date based on its performance.
At first glance, dividends may not seem like a significant amount. However, if dividends are reinvested over time, they can compound.
How to Choose the Best Types of Stocks for Your Portfolio
The first step in finding the best stocks to include in your portfolio is to assess your investment goals. Have you just started investing and are looking to gain more experience, or are you nearing retirement and want to ensure you protect your account from any losses that may occur? A good investment plan will require you to ask yourself questions before deciding what to do with your money.