Investment Essentials: Stock Types

It is quite often that stocks will be categorized as either growth stocks, income stocks, or even value stocks. What these terms mean however can be quite confusing for someone who thinks that stocks are simply just stocks. That being said, let's go over what they are and how to use the terms if we want to use them in the future to describe prospective stocks.

A value stock is essentially a stock that is currently selling for far less than it is actually worth. Keep in mind however that this term can be used loosely as each stock is evaluated differently by each type of investor. What I may deem as a value stock may not necessarily be what another investor who has looked at the stock deems to be a value stock.



In comparison, an income stock is one that quite simply makes money without you having to sell it. This is my stock of choice as this category generally refers to dividend paying stocks. This type of stock is best for investors who hate to be jerked around by the market and who want to avoid most of the dips and hills that can give regular investors heart attacks. Due to the fact that dividend paying stocks pay regularly as long as the company is profitable or they simply decide to still issue one, the owner of this type of stock can rest easy as they do not to constantly watch for a high price point to sell. You can simply sit back and collect dividends while the stock goes up, down, side to side, or does whatever it wants to do.

Lastly, let's review what a growth stock is. A growth stock is a stock that primarily hopes to crush the competition by yielding higher and higher returns each year. These are most commonly technology stocks that make a lot in profit and immediately reinvest that profit into the business to grow at an alarming rate. By doing so, the capital can have the chance to grow that much faster and the price of the stock therefore can take off like a bat out of hell. Be careful however as growth stocks can be incredibly volatile.