Types of Stocks
There are different types of stocks and funds that can be invested in, all with a different level of profit and risk potential; this is great because it allows for an incredible amount of control over your investment goals.
It is important to note that funds are a group of stocks organized based on the type of investor, which will also be explained below.
The two stock items below represent the most commonly used stocks, however, they can be customized based on the company’s preferences and/or the investor’s needs/requirements.
This flexibility creates an infinite variety of actual stocks, but they are all based on the following list of stocks and bonds.
Common stock is the type of stock that is most often traded; it is everything you see around you being moved around. The NYSE and Nasdaq, as well as foreign exchange (forex) markets, utilize this type of stock to trade everything imaginable.
Preferred stock represents a certain level of ownership in a company, this does not mean you will have the same voting rights for the company, but you will be given a fixed and guaranteed dividend forever. Common Stockholders are not guaranteed and the dividend can fluctuate wildly.
There are many funds available but only a few common funds, as with stocks, funds can be customized based on the investors’ needs/requirements.
Bonds are an investment on a debt, for example, you invest in mortgages held by banks, you receive an interest payment on them as well as the fairly frequent dividend.
Investing in bonds is safe, with the exception of the economy fluctuation as well as currency (dollar or otherwise)value
Stock funds, commonly referred to equity funds, mutual funds or exchange-traded funds deal in the trading of the above-mentioned stocks, common and preferred, they offer a degree of security and a long-term return potential.
These are best for those looking for long-term gains, with little risk on their investment.
Bond funds are a collective investment into bond and other debt securities; these include a variety of corporate and non-corporate loans (mortgage, car, etc) Bonds typically pay out a higher dividend with more frequency with other investments.
These investments are more secure than single bonds as they are diversified and less is invested individually, thereby reducing risk.
In regards to corporate bond funds, they often offer higher return yield but greater risk than traditional bonds.
Government Bond funds are included in this category but listed separately than regular bond funds as they are guaranteed by the U.S. government. Government bonds are primarily treasured securities because there is virtually no risk, they often less.
Municipal bonds are basically IOU’s issued by the local government to help fund local projects such as highway development and other community services.
The benefit of these is the owner of the bond is exempt from federal taxes. In most cases, the investor is also exempt from state taxes under the condition they reside in the state where the bond is issued.
Money Market Funds
Money market funds, often referred to as principal stability funds, seek to remove the risk to the principal due to credit, market and/or liquidity risks. They offer low return potential, but again are quite safe as they are spread over a range of investments.
In the almost 40 years of existence, the Money market has only had two incidents where the market has “broken the buck” or fallen below the $1 net asset value.
This chart details the stocks and bonds more clearly:
|If you are interested in:||Then you should invest in:|
|Safety of Principal||Government Bond Funds|
|Immediate Liquidity||Money Market Funds|
|Tax Relief||Municipal Finds|
|Maximizing Current Income||Corporate Bond Funds|