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6 Types of Stocks You Should Know

The two main types of stock are common and preferred. Stocks are also categorized by company size, geographic location and other factors.
Feb. 15, 2019
Investing, Investments
Types of Stocks
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A stock is an investment into a public company. When a company sells shares of stock to the public, those shares are issued as one of two main types of stocks: common stock or preferred stock.

If you’re new to investing in stock and looking to buy a few shares, you likely want to invest in common stock, which is exactly what the name suggests: the most common type of stock.

» Learn more: How to buy stocks

Common stock vs. preferred stock

When you own common stock, you own a share in the company’s profits as well as the right to vote. Common stock owners may also earn dividends — a payment made to stock owners on a regular basis — but those dividends are typically variable and not guaranteed.

The other main type of stock, preferred stock, is frequently compared to bonds. It typically pays investors a fixed dividend. Preferred shareholders also get preferential treatment: Dividends are paid to preferred shareholders before common shareholders, including in the case of bankruptcy or liquidation.

Preferred stock prices are less volatile than common stock prices, which means shares are less prone to losing value, but they’re also less prone to gaining value. In general, preferred stock is best for investors who prioritize income over long-term growth.

 Common stockPreferred stock
Pros
  • Potential for higher long-term return.
  • Voting rights.
  • Dividends are typically higher, fixed and guaranteed.
  • Share price experiences less volatility.
  • Preferred shareholders are more likely to recover at least part of investment in case of bankruptcy.
  • Cons
  • Dividends, if available, are often lower, variable and not guaranteed.
  • Stock price and dividend may experience more volatility.
  • More likely to lose investment if company goes bankrupt.
  • Lower long-term growth potential.
  • No voting rights in most cases.
  • Best for Investors looking for long-term growth. Investors looking for income.

    » Need a broker? Our picks for the best brokers for stock trading

    Other types of stocks

    Within those broad categories of common and preferred, stocks are also divided in other ways. Here are some of the most common:

    Size: You might’ve heard the words large-cap or mid-cap before; they refer to market capitalization, or the value of a company. Companies are generally divided into three buckets by size: Large cap (market value of $10 billion or more), mid-cap (market value between $2 billion and $10 billion) and small-cap (market value between $300 million and $2 billion).

    Industry: Companies are also divided by industry, often called sector. Stocks in the same industry — for example, the technology or energy sectors — may move together in response to market or economic events. That’s why it’s important to diversify by investing in stocks across sectors. (Just ask someone who held a portfolio of tech stocks during the dot-com crash.)

    Location: Stocks are frequently grouped by geographic location. You can diversify your investment portfolio by investing not only in companies that do business in the U.S., but also in companies based internationally and in emerging markets, which are areas that are poised for expansion. (Here’s more on how to invest in international stocks.)

    Company style: You might hear stocks described as growth or value. Growth stocks are from companies that are either growing quickly or poised to grow quickly. Investors are typically willing to pay more for these stocks, because they’re expecting bigger returns. 

    Value stocks are essentially on sale: These are stocks investors have deemed to be underpriced and undervalued. The assumption is these stocks will increase in price, because they’re either currently flying under the radar or suffering from a short-term event.

    Types of stock classes

    Finally, companies might also divide their stock into classes, in most cases so that shareholder voting rights are differentiated. For example, if you own Class A of a certain stock, you might get more voting rights per share than owners of Class B of the same stock.

    If a stock has been segmented into different classes, each class typically has its own ticker symbol. For example, 21st Century Fox shares are sold under FOXA (A shares) and FOX (B shares).

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