Whether you are just starting out in stocks, or you’re an accomplished day trader, it’s good practice to diversify your investments. There are many types of stock out there. Each type of stock carries its own advantages and disadvantages. The economy and current situations can all play a part in every form of stock, so it’s essential to invest in more than one category, to keep your investments spread out.

Income Stocks

Income stocks can be the least volatile of stocks and tend to bring investors consistent dividends. Income stocks are typically larger companies that are well established. As a result, profits tend to be sent to shareholders instead of reinvesting into the business. Income stocks offer higher dividends than many other stocks and can be a dependable source of money for investors. These stocks are typically business’ like natural resources, energy, food, utilities, financial institutions, and real estate. These stocks are known as Blue Chip stocks, meaning that the company that issues them is well-established and has a long history of positive progression and paying steady dividends.

Speculative Stocks

Speculative stocks are shares from start-up companies working on new products and technology. These companies are typically foreign, untapped, or made some substantial changes. These stocks hold a higher risk because the companies are often trying something new and have yet to prove themselves, but if they do well, the payoff can be significant.

Cyclical Stocks

Cyclical stocks are typically from companies that offer luxury and discretionary goods and services. Airlines, vehicle manufacturers, and companies that manufacture and sell electronics. Cyclical stocks can lose a significant amount of value during hard economic times, but some companies can recover, and even grow greater in value as the economy recuperates.

Growth Stocks

Growth stocks are shares in companies that continually use profits to reinvest into the company to finance development. These stocks don’t pay out high dividends. The benefit of growth stocks are, while the company expands, its financial value increases. As a result, investors will have higher financial gains on the improved value of the stock. These stocks can start to lose value as growth slows down, or the company has any financial downturns that slow down profits to continue investing in the business.

Defensive Stocks

Defensive stocks are from companies in food, fuel, health care, and utilities. These stocks are known as defensive stocks because they will still profit, maybe even more, in the event of an economic downturn. Stocks coming from businesses that sell budget goods, like large department stores, are known as defensive stocks as demand for discounted products grows when the economy is having trouble.

Penny Stock

Penny stocks are stocks that trade at no more than $5 each. These stocks are typically issued by small start-ups that need to raise capital. Penny stock can bring a lot of risk, as these new companies are just establishing themselves, but if the business does well, trading penny stock can come with incredible returns on investment.

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