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Types of Common Stocks

Stocks can be extremely helpful when it comes to making a lot of money, yet, they can be extremely harmful to your capital if you don't know the basics of common stocks (stocks that are a security that represents ownership of a corporation and organization ) such as the several different types of common stocks and their effects in the world of investing. Once this knowledge on common stocks is attained, you will have a fully guaranteed path to success and a large sum of money.

The easiest common stock to learn about and understand is "Blue Chips". These refer to the stocks of a country most prestigious companies. Since they are already so large, these companies usually don't have the capacity for further substantial internal growth, but they won't be out of business anytime soon. This makes these companies extremely reliable for investing in, and while they usually don't make a hefty amount of money, "Blue Chips" are low-risk investments, and you rarely need to raise additional capital. "Blue Chip" companies usually pay dividends to their shareholders, and they are a great way to make some excess cash.

The second type of common stock is "Utilities". These stocks are also relatively simple to understand. "Utilities" refer to the stocks issued by power and water companies. They usually don't have any competition, so you can enjoy some monopolistic conditions if you invest in "Utility" companies. For example, homeowners usually only have one choice from which to purchase their water and power services from. Because of these prevailing conditions, "Utilities" are considered low-risk investments, but they offer a fairly low reward. This is because they are also closely regulated with regard to the prices that they are allowed to charge for their services and the return which they are allowed to earn. Like "Blue Chip" investments, "Utilities" investments are considered extremely reliable and safe. Most utilities distribute most of their profits as dividends to their shareholders.

Next is "Established Growth", which refers to companies that are well known but small enough to allow future substantial growth. They are usually currently profitable, but they may need to raise additional capital to sustain their growth. Most of the earnings that these companies generate are usually reinvested to provide for more growth, and because of this, these companies usually don't pay dividends to their shareholders, but instead, shareholders make money in the form of capital gains.

"Emerging Growth" investments can be hard to understand. "Emerging Growth" companies are relatively small and have the potential for substantial future growth. These companies usually will need to raise additional capital to support their growth and expansion. Therefore, they will not pay dividends, and they do, however, have a potential risk because many management teams are not suited for the job.

Finally, the most complicated stock by far is "Penny Stocks". These companies have a high risk for failure and are definitely not recommended for first time and even experienced investors. These companies are usually still in the development process of their first product, and the stocks of these companies usually trade for less than five dollars per stock. These companies also usually suffer severe financial setbacks and are barely surviving. Since they are always losing money, there is a high rate of failure among "Penny Stock" companies.

Now that you know all about common stocks and how to properly utilize them, you will hopefully be able to choose good companies and corporations to invest in while gaining money and avoid companies that will only make you lose money. With this newfound understanding of the different types of common stocks and how they work, you should be able to strike it rich in no time.

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