What are the different types of stocks? An investor’s guide

Whether you’re new to investing in the stock market or considering changes to your existing portfolio, the sheer number of stocks to choose from can be daunting. And though it’s not necessary for you to have a deep knowledge of each type of stock available, knowing how stocks are categorized can help you make better decisions about where you’re investing your money.

We can help you understand the role that different stocks can play in your investment strategy and help you build a personalized and diversified portfolio that reflects your circumstances, risk tolerance and financial goals. Here’s an overview of the different types of stocks:

In this article: 

• Common stock vs. preferred stock
• Value stocks vs. growth stocks
• Large-, mid- and small-cap stocks
• Foreign stocks
• Dividend-paying stocks
• Sector stocks
• Questions to discuss with us

Common stock vs. preferred stock

Stocks represent a piece of ownership in a company, whose earnings and overall success affect long-term returns. It can be issued by the company in two manners: as a common share or preferred share. Here are the key differences between common and preferred stocks:

Learn more: Investing in the stock market: Pros, cons and investment options, explained

Value stocks vs. growth stocks

One common way to look at stocks is by how they can create potential returns for investors. When viewing equities through this lens, stocks generally fall into one of two categories:

• Value stocks are typically deemed to be undervalued, often because the company issuing the stock is involved in an unglamorous or low-growth industry, or because they have been negatively impacted by short-term events. The “value” comes from the expectation that their price will eventually increase due to the company’s underlying value and long-term performance.
• Growth stocks are from companies that are either growing quickly or poised to grow quickly. Investors are often willing to pay a premium for these stocks based on the expectation of making greater returns. For example, the tech sector has been the home to an impressive number of growth stocks in recent years.

Large-, mid- and small-cap stocks

One of the most common approaches to categorizing different types of stocks is by market capitalization, which is simply the value of a company’s outstanding shares. It can be helpful to think of market capitalization as a measure of the company’s size.

• Large-cap stocks generally refer to stock from a company with market capitalization of $10 billion or more. While there is no exact definition of large-cap stocks, they are often associated with established companies with proven records of profitability, with the most consistently successful of these stocks, sometimes called blue-chip stocks. Companies in the S&P 500 Index, for example, are large-cap stocks.
• Mid-cap stocks are issued by companies that typically have a market capitalization between $2 billion and $10 billion. Though it will always depend on the specific company, mid-cap stocks typically offer less risk than small-cap stocks but more than large-cap stocks. They can often help ensure a portfolio is not too heavily invested in large-cap stocks investors are most familiar with.
• Small-cap stocks are issued by companies that typically have market capitalization of less than $2 billion and may still be in the early stages of their development. Due to their potential for future growth, small-cap stocks offer the potential for higher returns, though that potential also comes with greater risks.

Foreign stocks

While many investors get started by trading in the U.S. stock market, purchasing stocks of companies based in foreign countries is one way to help diversify the regional and global markets your portfolio has exposure to.

• Foreign stocks are issued by companies that are based outside the United States. Though some of these companies may have stocks that trade on U.S. stock markets, most of their revenues and profits are typically generated elsewhere. International stocks can help diversify your portfolio and offer the potential to invest in developing companies and economies around the world. However, you do subject your portfolio to geopolitical risks when investing internationally.
• Emerging market stocks are a subset of foreign equities that come from companies based in countries with rapidly growing economies. Stocks from such markets typically offer greater potential for growth but also higher risk than those in fully developed markets. Further, which countries qualify for “emerging market” membership are ever-changing because the investing landscape in these nations can be unstable and change rapidly. However, in the past, the BRIC countries — Brazil, Russia, India and China — have been viewed as emerging markets.

Dividend-paying stocks

Many companies provide dividend payments to shareholders on a regular basis. Dividend-paying stocks — also known as income stocks — are those that typically offer regular, higher-than-average dividend yields and lower volatility than the overall market. They can provide valuable income for investors but may have limited potential for future growth. Income stocks can be found in any industry but are often companies involved in real estate, energy, utilities, natural resources and financial institutions.

Sector stocks

Because stocks from companies in the same industry often move together in response to market or economic events, another way stocks are classified is by sector, which is based on what business they are primarily involved in. The Global Industry Classification Standard divides the market into 11 sectors:

Let’s find a personalized mix of stocks for you

We can work with you to create an investment strategy that leverages stocks for their high-growth potential, while also being personalized to your unique needs, risk tolerance, time horizon and financial goals.