If you are new Investor or new to the market, this is one of the basic you must know.
Most of the people never heard of stock types, they may not the importance of portfolio balancing based on stocks, But as a investor we should understand stock types and their risks, so we can balance our portfolio based on our risk appetite.
Basically There are 6 types of Stocks :
Blue Chip Stocks:
Blue chip stocks involve less risk and less volatile, if you are new to market it would be better to give more allocation like 30% to Blue chip stocks. And remember as they are less volatile you may not get massive return also you may get returns similar to index funds.
Growth Oriented Stocks:
Growth Oriented Stocks are high risk and high volatile stocks, basically these are the which may see growth in future years, but as I said earlier high volatile means sometimes you may see more correction , Beginners can give 10% allocation to growth oriented stocks.
Dividend stocks:
Dividend stocks are the stocks which will pay continuous dividends, If you are beginner and you were expecting some annual return you can give more allocation like 20%.
Cyclical stocks:
Cyclical stocks are also called as commodity stocks because their price varies based on commodity prices , these are most suitable stocks for trading rather than investing, because in one cycle they will go up and down, but make sure if you trading in these types of stocks, you should know your proper exit point and knowledge to understand the ongoing changes, For beginners it is better to avoid this types of stocks until you get some knowledge.
Defensive stocks:
Defensive stocks like Blue chip stock only, they are less volatile, but these stocks based on daily needs, so even there is economy collapsed or inflation increased, these stocks will give good returns. Beginners can give 20 to 25% allocation.
Penny stocks:
Penny stocks are stocks whose prices below 100, these are high volatile and high risk stocks, unlike growth oriented stocks, in penny stocks you may not see massive returns , there are very few chances. But many newbees prefer these stocks because they prefer quantity they assume that if you are getting more shares means you may get rich quickly, but it is not true, If you are beginners and if you feel it may give profits in futures you can allocate 5 to 10% .
Providing some of the example for further study.
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