Welcome To Step 1!

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Welcome to your first step on your investing journey! On this page we talk about what stocks are, the different types of stocks, and what they are all about!

 We go into quite a bit of detail here, so don't be discouraged if it seems to much just keep at it and keep learning!

Read what we have carefully and don't get discouraged. If you have any questions get in contact with our team!

Knowing the ins and outs of the stock market and how it works is a crucial step in gaining confidence in the stock market.

 Stocks and Shares: Stocks represent ownership in a company. If the company performs well, the value of your stock may rise, and if the company performs poorly, the value 

could fall. 

 Stock Prices: Stock prices fluctuate based on supply and demand, influenced by factors such as company performance and industry trends. Economic events, such as changes in interest rates or inflation, can also impact stock prices. 

 Bulls and Bears: The terms "bull market" and "bear market" are often used to describe the general direction of the market. A bull market is characterized by rising prices, while a bear market signifies falling prices. These terms are often seen so it's good to be familiar with what they mean.

Dividends: Some stocks pay dividends, which are a portion of the company’s profits paid to shareholders. They are a source of consistent income where you get a return from the company rather than the price of a stock.(More details further below)

Most common types of stocks and what they mean.

Now, we go into a lot of depth about the different stocks available. It might get confusing but don't let that discourage you. Knowing the different types of stocks and what they are all about is one of the most crucial pieces of knowledge. It is the foundation of investing in stocks so really take it all in, have patience and enjoy!

Common stocks

They are the most widely traded type of stock. When you own common stock, you own a piece of the company and have voting rights at shareholder meetings. This means that on the investing platform you are using, you will get a notification to cast your vote on companies decisions such as mergers and such. If you don't wish to partake you don't have to vote your platform will cast your vote for you(Proxy Vote). If you are interested in this kind of thing check your platforms voting features to find out more!

Key Features:

-Voting rights in company decisions.

-Potential for capital appreciation (The increase of how much the stock is worth).

-Dividends (if declared by the company, but not guaranteed. More about dividends on the dividend stock paragraph).

Best For:
Investors beginning in the stock market as it is the most common stock. There is small bit  more risk than the other stocks, but there is a lot more room for growth. A good bit of research and monitoring the stocks performance is the best way to make profit of common stocks.

Blue Chip Stocks:

These are shares in large, well-established companies that have a history of stable performance, reliability, and consistent profitability. Blue-chip stocks are often seen as safe investments because they tend to be less volatile and offer steady returns over the long term.

Examples:

• Apple 
• Microsoft 
• Coca-Cola 

Key Features:

• Stability: Blue-chip stocks are generally considered safe and reliable.
• Dividends: Many pay regular dividends, offering income in addition to price appreciation.
• Lower volatility: These stocks tend to be less affected by short-term market fluctuations.

Penny stocks

 They are low-priced stocks, typically trading for less than $5 per share. These stocks are often associated with smaller, emerging companies that are either new to the market or have been underperforming. They can be traded on major exchanges, like the NYSE or NASDAQ, or over-the-counter (OTC)Many of the investment platforms we mention on our website allow the purchase of penny stocks. We don't really recommend purchasing these especially as a beginner as they are highly unpredictable.

Characteristics

• Low Liquidity: Penny stocks are often traded in smaller volumes, making it more difficult to buy or sell large quantities of shares without impacting the price.
• Volatility: The price of penny stocks can be highly volatile, with sharp movements in either direction.
• Speculative Nature: Penny stocks are usually seen as speculative investments. While there’s a chance of big profits, there’s also a high risk of significant losses.

Growth stocks:

These are shares in companies that are expected to grow at an above-average rate compared to other companies in the market. These companies typically reinvest their earnings into expanding operations, product development, or market share rather than paying dividends.

Examples:

• Tesla
• Amazon
• Meta Platforms (META formerly Facebook)

Key Features:

• High potential returns: Investors look for companies that can grow rapidly, which can lead to significant capital gains.
• Innovation: Many growth stocks are in industries like technology, renewable energy, or healthcare, which are seen as having high growth potential.

Preferred Stocks

Preferred stockholders have a higher claim on the company’s assets and earnings than common stockholders. This means they receive dividends before common shareholders, and in the event of bankruptcy, they are paid out before common stockholders. They are stocks that rely on the companies performance rather than the price of the stock itself. A dividend is basically some of the profits the company makes and instead of them reinvesting it into the company, they give it out as dividends. It is a safer investment as it is less volatile and a constant stream of income. 

What Is Dividends? The dividends are paid out monthly, quarterly, or annually depending on the stock. The amount paid per dividend is decided by the board. For example; If a company pays a dividend of $2 per share and its stock price is $40, that means the dividend yield(percentage) is 5%. This needed to know before choosing a preferred stock. Further below is a quick rundown of the different types of preferred stocks!

Cumulative preferred stocks: are among the most common types of preferred stock. They guarantee that if a company skips a dividend payment, the missed dividend will accumulate and must be paid before any dividends can be paid to common stockholders. This provides additional security to investors compared to non-cumulative preferred stocks.

Example Stock: General Electric (GE) Series B Cumulative Preferred Stock

Best For: Investors seeking reliable income with a measure of protection against missed dividend payments.

Key Features:

• No voting rights (typically).
• Fixed dividends that are paid before common stock dividends.
• Priority over common stockholders if the company liquidates.
• Less price volatility than common stocks, but also less potential for growth.

Best For:
Income-focused investors who want regular dividend payments with less volatility. They are often favored by conservative investors. It takes a while to see profit but if you want a stock that doesn't need much monitoring this could be a solid option for you.

Convertible preferred stocks: give investors the option to convert their preferred shares into an already decided number of common shares. This feature provides the potential for capital appreciation (profit from stock raising in price) if the company's stock price increases, while still offering the fixed dividend feature of preferred stock.

Example Stock: Ford Motor Company Convertible Preferred Stock (Ford's 7% Convertible Preferred Stock)

Features: 

• Convertible preferred stocks can be converted into a predetermined number of common shares at the investor's discretion.
• They provide a fixed dividend, offering steady income like other preferred stocks.
• The conversion option allows investors to benefit from capital appreciation if the company's stock price increases.
• These stocks typically offer lower dividend yields (percentage) compared to non-convertible preferred stocks due to the added conversion feature.

Best For:
Investors looking for a combination of income from dividends with the possibility of benefiting from capital appreciation by converting to common stock. Same as all preferred stock it can take a while to see profit but, with the added conversion feature it allows you to gain from the rising stock prices, it would just take a good amount of monitoring and research before hand to really gain from convertible stock.

 ETFs (Exchange-Traded Funds)

They are investment funds that trade on stock exchanges, similar to individual stocks. They pool money from investors to buy a diversified portfolio of assets such as stocks, bonds, commodities, or real estate. ETFs offer a low-cost, flexible way to gain exposure to a wide range of markets and sectors. One of the main benefits of ETFs is diversification, which helps spread risk across different assets. They also provide liquidity, as they can be bought and sold throughout the trading day, just like stocks.  Additionally, there may be brokerage fees associated with buying and selling ETFs, depending on the platform you use. Overall, ETFs are a great option for those seeking diversified, low-cost investments, but it's important to choose carefully based on your investment goals and risk tolerance.

Examples:

SPDR S&P 500 ETF (SPY): This is one of the most popular ETFs, designed to track the performance of the S&P 500 Index, which includes 500 of the largest publicly traded companies in the U.S. It's a great choice for broad market exposure and is commonly used by investors looking for long-term growth.
 

Vanguard Total Stock Market ETF (VTI): This ETF provides exposure to the entire U.S. stock market, including large, mid, and small-cap companies. It tracks the CRSP US Total Market Index and is popular for its low expense ratio and comprehensive market coverage.

Well Done! That's the first page over. You now know about most of the types of stocks you'll be investing in and what they are all about! Click here To move on to Step 2: Setting Your Financial Goals!

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