Stocks come in a few main types, including common and preferred shares, and categories like growth, value, blue-chip, and dividend stocks, each with a different balance of risk, income, and growth potential. Every stock represents part-ownership of a company, but the rights it gives you and the way it tends to behave can vary a lot. If you're new to the basics, start with [What a stock is].
What are the main types of stocks?
Stocks are usually grouped in two ways: by the rights they give shareholders, and by the kind of company behind them. The main types are:
- By shareholder rights: common stock and preferred stock.
- By investment style: growth stocks and value stocks.
- By reputation or income: blue-chip stocks and dividend stocks.
- By company size: large-cap, mid-cap, and small-cap stocks.
- By sector: the industry a company operates in, such as technology or healthcare.
These categories overlap. A single stock can be a common share, a blue-chip stock, and a dividend stock all at once.
Common vs preferred stock
The main difference between common and preferred stock is the rights each one gives you. Common stock is the most widespread type of share. It usually gives you voting rights at shareholder meetings, and any dividends depend on the company's profits and decisions.
Preferred stock usually comes without voting rights, but preferred shareholders receive dividends before common shareholders, often at a fixed rate. If a company goes bankrupt, preferred shareholders are also paid before common shareholders, though both rank behind the company's creditors. In return, preferred shares typically offer less potential for price growth. When people talk about "buying stocks", they usually mean common stock.
Growth stocks vs value stocks
Growth stocks are shares in companies expected to grow their revenue and profits faster than average. These companies often reinvest most of their earnings into expansion, so they tend to pay little or no dividend. Their share prices can rise quickly, but they're often more volatile (prone to bigger price swings), especially when growth disappoints.
Value stocks are shares that appear to trade at a low price compared with the company's fundamentals, such as its earnings or assets. Investors who focus on value hope the market will eventually recognise the company's worth. The risk is that a stock can look cheap for a good reason, such as a declining business. Growth stocks tend to attract investors focused on long-term price gains, while value stocks attract those looking for companies they believe are undervalued.
Other common categories
Beyond the main splits, you'll often see stocks described in these ways:
- Blue-chip stocks: shares in large, well-established companies with a long track record and a strong reputation. They're often seen as more stable, but they can still fall in value.
- Dividend stocks: shares in companies that regularly pay part of their profits to shareholders. Learn more about [Dividend stocks].
- Large-cap, mid-cap, and small-cap stocks: grouping by market capitalisation (the total value of a company's shares). Smaller companies can grow faster but tend to be riskier and more volatile. The exact thresholds vary by market and source.
- Sector stocks: grouping by industry, such as technology, healthcare, energy, or financials. Companies in the same sector are often affected by the same economic trends.
How do you choose the right type of stock?
There's no single right type of stock. It depends on your goals, time horizon, and risk tolerance. Investors focused on regular income may look at dividend-paying companies, while those with a long time horizon may be more comfortable with the price swings of growth stocks.
Holding several types of stocks across different sectors and company sizes is one way to diversify. Whatever types you consider, research each company individually. Our guide on [How to pick stocks] explains how. Remember that every type of stock carries risk, and you could lose some or all of the funds you invest.
This article is for educational purposes only and is not investment advice. The value of investments can go down as well as up.