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10 ways to categorize stocks and 3 ones young investors should look out for. Young investors are time rich but cash poor so it's important to find stocks that compliment a teen investor's needs.
There are hundreds of thousands of stocks you can buy and sell across hundreds of different stock exchanges. In order to understand them, and make decisions as a young investor, we group stocks by total value in the stock market “cap”, benefits, service model, price, and reputation.
We’ll cover 10 stock categories and then talk about stock types young investors should look for.
Common Stock is what companies on the stock market offer. Common stocks are partial ownership, or slices, of a company.
You have the right to profits proportionate to your slice.
If the common stock investment in a company fails and loses value on the stock market, your ownership also becomes worthless.
Preferred Stock is similar except shareholders, buyers and sellers of stock like you, have the right to a certain amount of money in the cases of dissolution, company failure, closing, or significant drop in value.
Preferred stock also entitles owners to dividend payouts, payments just for owning the stock, before common stock owners.
Stocks are also grouped by their market cap or the total value of shares in the stock market.
You can look at the headquarters of companies to see if it’s international or domestic. Even if a company is international, its sales may come from the US.
All companies have to IPO so there isn’t anything unique operationally about IPO stocks
Because all companies go through an IPO to be on the stock market, IPO stock refers to any new company on the stock market.
Some companies depend on major seasons for their business. Industries like travel, hospitality, and manufacturing are all cyclical.
Stocks that are low risk and rarely affected by economic situations are considered safe. These companies often pay dividends as well.
It’s important to note that even if a company’s services are needed year-round, regardless of a crisis, there are factors such as manufacturing, shipping, and sales that can change based on the economy.
It is incredibly difficult to determine what a safe stock is, and each safe stock may be subjective.
ESG (environmental, social, or governance) stocks are companies that aim to solve or help prevent major issues that harm humanity.
ESG stocks could be green energy, affordable housing companies, and anything that aligns with social good.
As a young investor, you have lots of time but limited money, so compound interest and investing for the longterm will be your friends.
Thanks to compound interest, when your stocks begin to profit off themselves assuming a increasing annual return, investing $5 every day at the age of 16 can become $1.7 million by 65.
Look for stocks that will prosper for years to come and buy in at a lower price.
The next Disney, Amazon and Google are your goal. Sniping, or identifying brilliant stocks, is not easy so sticking to the S&P500 or even today’s giants can still bring great rewards.
Dividends Stocks come from companies that pay investors annually or quarterly just for owning the stock.
In addition to annual or quarterly payouts proportionate to your stock, you maintain ownership of the stock and are entitled to proportionate profits.
With dividends, investors gain the double benefit of traditional long term gains as well as some cash in the short term.
Dividends typically come from non-cyclical, reliable and reputable companies since being able to offer dividends is a significant achievement for a company.
If you want to avoid manually rebalancing, revising stocks and researching companies for strong investments you can let professionals and companies do the work.
ETFs are the mutual funds of the stock market. ETFs are baskets of stocks usually within a category of market cap or business type.
ETFs allow you to purchase multiple stocks for the price of one, making diversification less expensive.
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