Those who have studied the stock market know that there are a few different types of stocks, each with different characteristics and tendencies.
Unfortunately, this type of knowledge isn’t known to the average person who treats all stocks the same.
Understanding truly what type of stock you are dealing with in advance can save you not only much money, but massive amounts of time as well.
Once you know the types of stocks that exist, you can also align yourself with those that match your risk profile and timeframe.
So without further ado, let me break them down for you.
First up are the income stocks.
These types of stocks have long peaked and now are just paying off dividends but are also relatively stable in their movements.
A typical income stock may make a 100% move in 10 years, averaging just ahout what the indices make.
Those who have very little risk tolerance and may be nearing the end of their investments journey would benefit from owning income stocks.
Personal opinion, but it would make more sense to own the entire index at that point but regardless, these types of stocks are the boring but somewhat reliable old companies.
Next up are the leader growth stocks.
These are the Nikes Apples and Costcos that are amazing businesses and are continuing to outperform expectations but maybe at a slower pace than before.
These companies are larger, more risk averse than a classic growth stock, yet still tend to outperform the indices because of their reliable growth.
These stocks may make a 100% move in about 5 years, and are honestly what most people should be looking into if they want to consider individual stocks.
The we have the cyclical stocks.
Companies like Express or Expedia that follow the cycles of an economy through expansion, peak, recession, and recovery.
When in favor, these stocks can grow like crazy and may make a 100% move in 2 short years.
But before you know it, they’ll be out of favor again if the economy turns down.
These businesses perform well when the economy is doing well but are super fragile in the sense that if the economy starts slowing, they will start underperforming heavily.
Lastly, we have the dynamic growth stock like Crowdstrike or Tesla that has the potential to make 500% returns in 2 years.
These companies are growing insanely fast and are really absolute game changers so the market is rewarding them heftily.
However, these tend to do best only in highly liquid and relatively low interest rate periods where the market has a bias for innovation.
So they tend to lead markets to the upside during these easy-dollar environments but absolutely lead to the downside during the opposite.
Higher risk for the higher potential reward.
Those are all the types of stocks (of growing businesses) that you could possibly invest in.
They differ based on the risk to reward mechanics of each, as well as the timeframes involved but in general, they’re all good options depending on how you use them.