Stocks are considered investing’s “basic building blocks.” It doesn’t matter if you plan to purchase individual stocks or mutual funds and ETFs (exchange-traded funds) that own shares of multiple companies; understanding more about the types of stocks is a must.

It’s also worth noting that the best stocks for one person may not be the best stocks for another. Also, the financial industry is always changing and evolving, so staying abreast of updates and changes is a must if you plan to invest.

Keep reading to learn more about the types of stocks available.

Common Stock

If you have never invested in stocks before and want to purchase a few shares, common stock is the best option. As the name suggests, it’s the most common type of stock available.

When you purchase common stock, you have a share of the company’s profits, and you have the right to vote. As a common stock owner, you can also earn dividends.

A dividend is a payment made to the owner of stocks regularly. However, dividends are variable and never guaranteed.

An online stock broker can help you figure out what type of common stocks to invest in.

Preferred Stock

Every public company has common stock. However, some issues preferred stock.

This provides an advantage of the common stocks and bonds in one security.

If you invest in preferred stock, you receive guaranteed dividends and the chance for price appreciation. If a company’s common stock pays out dividends, then the dividend for preferred stock is usually higher.

Also, as a preferred stock shareholder, you are more likely to receive compensation if the company becomes insolvent.

Another difference between common and preferred stock is that the company that issues the stock can buy back preferred stock, which means the stock is callable. Also, shareholders can convert preferred stock into common stock.

One of the main downsides of preferred stock is that you don’t have voting rights as a shareholder.

Large- Mid- and Small-Cap Stocks

The worth of all the shares may also categorize Stocks. This is called market capitalization.

A company with the largest market capitalization is a large-cap stock, with mid- and small-cap stocks being for smaller companies.

It’s worth noting that there’s no set line separating the categories when it comes to large-, mid-, and small-cap income stocks. However, the general rules that are accepted include:

• Large-Caps: Market capitalizations over $10 billion
• Mid-Caps: Market capitalizations between $2 billion and $10 billion
• Small-Caps: Market Capitalizations under $2 billion

The more conservative and safer investment is large-cap stocks. While mid- and small-cap stocks are riskier, they have a higher potential for growth.

Understanding The Different Types Of Stocks

The above information gives you a brief overview of the different types of stocks you can invest in. Each one has specific advantages and disadvantages.

Once you learn more about stocks, it is possible to venture into the realm of trading and even start working as a stock day trader. But make sure you aren’t moving too fast.

Did you find the information above helpful? Do you want more resources and information? If so, be sure to check out some of the other blogs on our site.