Different Types of Stocks You Should Know

The main types of stock are common and preferred. Stocks are also categorized by company size, industry, geographic location and style. Here's what you should know about the different types of stock.

Key Points

1. There are two primary types of stocks: common stock and preferred stock. Common stock typically grants voting rights to shareholders.
2. Preferred stock, on the other hand, usually doesn't come with voting rights but often provides higher dividend payments.
3. Stocks can also be categorized by factors such as company size, industry sector, geographic location, or investment style.
4. Additionally, some companies issue multiple classes of stock (e.g., Class A and Class B), which may offer different levels of voting power.

A stock is an investment into a public company. When a company sells shares of stock to the public, those shares are typically issued as one of two main types of stocks: common stock or preferred stock. Here’s a breakdown.

1. Common Stock

If you're new to investing and looking to purchase shares, common stock is likely what you’ll invest in, as it's the most common type of stock. Owning common stock gives you a stake in the company’s profits and the right to vote on important matters. Common stockholders may also receive dividends—regular payments to shareholders—but these dividends are often variable and not guaranteed.

2. Preferred Stock

Preferred stock, the other main type, is often compared to bonds because it usually pays a fixed dividend. Preferred shareholders are prioritized over common shareholders when it comes to dividend payments, especially in the event of bankruptcy or liquidation. Preferred stock prices tend to be less volatile, meaning they are less likely to lose or gain significant value. This type of stock is generally suited for investors who seek steady income rather than long-term growth potential.

3. Large-cap stocks, mid-cap stocks and small-cap stocks

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).

4. Sector stocks

Companies can also be classified into sectors based on what their core business is. The Global Industry Classification Standard (GICS) divides the market into 11 sectors:
1) Energy
2) Materials
3) Industrials
4) Consumer discretionary
5) Consumer staples
6) Health care
7) Financials
8) Information technology
9) Communication
10) Utilities
11) Real estate

When investing in stocks, a key factor is not just the category of the stock but whether you believe in the company’s long-term growth prospects and how the stock fits with your existing investments.

If the prospect of building a diversified portfolio of individual stocks feels overwhelming—understandably so—you might want to explore stock index funds.
Index funds offer a straightforward way to achieve diversification, allowing you to invest in a broad array of stocks through a single transaction.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.