Stock Market Investment Tips: Knowing the Types of Investments to Make

Different types of investments

There is a multitude of types of investments, each of them has different specifics, and it’s good to think of them as investment tools to help you achieve your goals financially. The most common type of investments that people are aware of is stocks and bonds.

Bonds are at their core a loan that an investor makes to an organization in exchange for staggered payments which account for interest over a specific term so by the end of the bond you will have gotten the amount you loaned accounting for interest and a bit more money. Think of this as an easy and predictable way to make money, it’s guaranteed money that can give you at minimum your money back plus a bit.

Stocks, on the other hand, are the riskier option but at the same time, the profit potential is higher than bonds. Stocks are a percentage of the companies’ assets you buy; they represent ownership shares which can also be called equity shares. The common way to make money from stocks is to buy stocks from a company you expect to become more expensive in the future and then sell it when you expect them to go down. The profit potential is a lot higher than bonds but that carries with it the corresponding risk, specifically that the price of the stocks is basically out of your control as it all relies on the company and the situation of the country.

Stocks and their different types

Stocks befitting their volatile nature have a wide variety of types and names. They can be separated by their type such as common or preferred stock, they can also be differentiated by their methods, there are a great many types of investments in the stock market and you should look into what type would help you the most.

Type

Common stock refers to the stock that is being traded in the stock market; they represent partial ownership of the company.

Preferred stock works slightly differently in that they are given precedence over common stock, they have more hierarchy than common stock hence preferred. Preferred stock usually has a stipulation where if the company ever dissolves, they are required to receive their money first and have a minimum amount of money they must get if not the full value of their stock.

Methods

This is by far the most diverse and divisive classification as it can range from typical stock trading to complex and more risky forms of stock trading.

Normal stock trading is buying stocks of a company that you expect to soar at its low point and then selling it at its highest point. The basics of economy, buy low and sell high. This can further be classified by the type of company stocks you buy. Specifically on the perceived value of the companies’ stocks.

Growth stocks refer to buying stocks from a hot company and waiting for the trend to slow down before selling. Usually, this type of stock is tied to long-term trends in society that support the products and services of the company.

Value stocks are the conservative counterpart of growth stocks as it means investing in companies that have already established themselves, seeking more reliable investments that can guarantee returns rather than high returns.