What Are The 5 Types Of Stocks Every Investor Should Own?

By using different stock investment options individuals do build up their wealth and grow funds using stocks or types of stocks. In simple terms, if you want to know what is stock? Then we must tell you, the stock is the ownership by the number of shares in any company. So, if you own stocks or stocks in any company that tells us or the others that you can claim in its earning and assets. And thus, you are a shareholder too for that company in which you own the stocks. And there are different types of stocks for investors. So, let us discuss more about different types of stocks or categories of stocks and types of stock investments as well as types of shares and more related terms. 

What is the stock?

Stock is the ownership by the number of shares in any company. So, if you own stocks or stocks in any company that tells us or the others that you can claim in its earning and assets. And thus, you are a shareholder too for that company in which you own the stocks. So, the stock meaning tells you about the ownership of the stocks. 

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There exist 2 basic categories of stocks which are:

• Common stock and
• Preferred stock

 

• Common stock is the one most preferred by an investor who needs a long-term growth.
• Preferred stock is the one most preferred by an investor who needs an income. 

What are the five types of stocks?

Apart from Common stock and preferred stock, there also exist different types of stocks, which are as follows:

• Based on the company (Market capitalization)

• Based on industry

• Based on the Business cycle

• Based on Investment cycle

1. Based on Location

• Based on the company (Market capitalization)

Here, the stocks are categorized based on their market value of the total company’s share. And on the basis of the size of the company the market capitalization is again divided into 3 categories of stocks or the types of stock trading as follows:

• Small Cap
• Medium Cap
• Large Cap

So, let us understand about these 3 types of company stocks or the 3 types of stock investments. 

• Small Cap: The stocks that hold the smallest values in the market capitalization are known to be as the small cap stocks. Basically, these small cap stocks are held by small companies. These small stocks are available at a cheaper value which Small companies or small investors can purchase and these will be beneficial for them in the long run. A market capitalization that falls within the range of up to 250 crores or says a market value in the middle of $ 300 million and $ 2 billion is treated as small cap stocks.

 

• Medium Cap: The stocks that hold the medium values in the market capitalization are known to be as the medium cap stocks. Basically, these medium cap stocks are held by medium companies that offer investors with good growth potential and better stability. A market capitalization that falls within the range of 250 crores and 4000 crores or says a market value in the middle of $ 2 billion and $ 10 billion is treated as medium cap stocks.

 

• Large Cap: The stocks that hold the large values in the market capitalization are known to be as the large cap stocks. Basically, these large cap stocks are held by the large companies that have huge cash reserves at their disposal. A market capitalization of $ 10 billion or more is treated as large cap stocks.

 

• Based on industry

Then another five types of stocks are on the basis of industry or often called out to be as a sector. As Maruti Suzuki, Tata Motors, Ashok Leyland, etc. are all same automobile industries having the same category of stock.

 

• Based on the Business cycle

Next on the basis of business cycle stock types are of 2 types, which are:

• Cyclical stocks, and

• Non-cyclical stocks or Defensive stocks

 

• Cyclical stocks: The stock that moves as a cycle or says flows in the direction of the market are called cyclic stocks. This tells us that if the economy is performing well the stocks will also be favourable or high and rise, and if the economy is not performing well or going down the stocks will also fall. As, travel and tourism, luxury products, automobile, hotels, etc. They all carry cyclic stocks. 

 

• Non-cyclical stocks or Defensive stocks: Non-cyclical stocks or Defensive stocks have no effect on the economy on the stocks, even if the case of depression or an economic slow-down arise then also the stock will work as before at their normal values. They include goods and services such as utilities, food, and medicines and Tobacco, Alcohol companies, etc. 

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• Based on Investment cycle

Here, on the basis of investment type stocks can be categorized into subsequent types:

• Growth stocks
• Value stocks
• Dividend stocks

 

• Growth stocks: growth stocks are the ones that are brought with in a company at a higher growth rate. And here the investors purchase the stocks at high rates which shows their fast growth. Thus, referred to as growth stocks or fast growth stocks.

 

• Value stocks: Value stocks are the ones that grow at a slower pace and even their market value is lower than their actual value or their true value.

 

• Dividend stocks: Dividend stocks are the ones that generate a regular income for the investors or consistent returns as they receive increasing dividends on the stocks held by them.

 

• Based on Location

On the basis of geographic location, stocks can be grouped up too. Here also there exist two different types of stocks which are:

• Domestic stocks, and
• International stocks

 

• Domestic stocks: These are the stocks which tell us that both the company and the investor are based in the same country.
• International stocks: These are the stocks which tell us that both the company and the investor are located in different countries.

Types of stock classes:

Companies also divide stocks or categorize stocks them on basis of their classes to provide different voting rights to the shareholders based on their classes. As, here the classes of stock market basics suggest that class A will enjoy more voting rights than the class B shareholders. 

Some other types of investment stocks:

There also exist some other types of investment stocks in the market, which are as:

• Hybrid Stocks

• Income Stocks

• Blue Chip Stocks

 

• Hybrid Stocks: Hybrid stocks are better known to be as convertible preferred shares stocks, that have the option of converting the shares to common shares, with conditions, at a certain point in time.
• Income Stocks: Income Stocks are the ones that gives higher income in form of a dividend, which is a consistent dividends offered by high growth companies. 
• Blue Chip Stocks: Blue Chip Stocks are offered by the companies with lower liabilities and stable earnings and thus paying regular dividends to its shareholders or investors. 

Frequently Asked Questions related to what are the 5 types of stocks every investor should own:

Conclusion:

Stocks can be classified into different stock categories. And here we have known what are the five types of stocks? Based on their characteristics. Classifying the stocks makes it easier for the investors to analyze the companies based on their fondness. As some of the popular types of stocks are: 

• Based on the company (market capitalization)
• Based on industry
• Based on the business cycle
• Based on investment cycle
• Based on location

So, deeply understand about the types of stock exchange markets as well as the types of shares stocks in the market and then start to trade. 

 

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