Stocks Part 2: Different Stock Classes

“Risk comes from not knowing what you are doing” – Warren Buffett

When learning about the basics of stocks it is important to understand the different types of stocks. Every stock does not fit every occasion. Some stocks provide short-term cash, some provide long-term capital growth, and some stocks provide supplemental income. Each stock has its own characteristics, so it is up to you to decide which stocks would be most beneficial for you.

Before you start buying stocks it is important to know what you are buying and why you are buying it. Are you trying to grow your money or maintain a constant cash flow? Read below to see which of the four stock classes aligns best with your portfolio.

Blue- Chip Stocks

Blue- Chip stocks are the financially stable companies. These companies have a long history of growth and profit. “Blue Chip” companies pay out steady dividends that gradually increase over time. In order for a company to be considered a blue-chip stock, it generally has a market cap of over $5 billion. These stocks come from reputable companies that have little to no chance of going bankrupt. Blue- Chip stocks provide safety to investment portfolios because of their history of high performance and longevity. Some examples of today’s blue-chip stocks are:

Apple

Visa

Walmart

Coca-Cola

Exxon

Growth Stocks

Growth stocks come from companies that are expected to grow at a faster rate than its peers. Growth stocks can be more expensive due to their current popularity. Growth companies tend to focus on sales and the popularity of their product or service to attract its investors. However, the popularity aspect of the company causes increased risks for growth companies. If a product or service loses popularity the company stock prices can fluctuate drastically. Some examples of Growth stocks are:

Amazon

Disney

Qualcomm

Value Stocks

Value stocks trade at a lower price than what the company’s numbers indicate. A value stock will be a bargain compared to its business peers. A value stock may be going through a temporary downturn but may bounce back once it overcomes the negative market perception. Value stocks can be considered the riskiest of all stocks because of the possibility that the market may never recover from its negative position. Below are some historical examples of value company stocks

Hanesbrands

Footlocker

Intel

Income Stocks

Income stocks are also known as dividend stocks provide consistent income to its investors. Income stocks may provide quarterly or even monthly income to its shareholders. Most income stocks do not fluctuate in price like the other stocks. Income stocks are tailored for the cautious investors due to lack of volatility. Although income stocks provide constant dividends, they do not offer much growth opportunities. However, income stocks do offer more stability during a bear market. Some examples of income stocks can be found in the sectors below:

REITs – Real Estate Investment Trusts  

Energy sectors

Utility sectors  

Each stock mentioned above serves a different purpose for your investment portfolio. Whether you are searching for passive income or capital growth, the major key is to know how each stock operates. Personalize your investments to fit the lifestyle you want to live.  Determine today which stocks are best for your portfolio. Be sure to check out part one of the stocks series as well!