Portfolio investment is a sure way of ensuring a diversified risk. You could be having some savings in the bank that you wish to invest and not just leave it to idle in your bank account. The best investment you can think of putting your cash into is in stocks.
With company shares, neither physical presence nor energy is required to make money work out. All you require is to put your money in the stocks and do a follow-up online through online trading platforms such as Metatrader 4. The four main stock variations you can invest in to diversify your portfolio include the following.
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Growth Stocks
Unlike dividend stocks, growth stocks are an investment whose main drive is capital growth. The growth stocks include company shares producing cash flows and whose incomes are predicted to expand at a rate comparable to the marketplace.
You can be assured of great and consistent growth in your earnings if the company is being headed by a trusted and very efficient manager, whose major concern is ensuring shareholders’ money is put to good use to generate huge earnings.
Before investing in a company’s future stock for earnings, you should make sure that the company’s future is predictable. Obtain the company’s financial statements to determine its earnings growth over the years, and determine its state of going concern. You should not invest in a company blindly. Do the research. And you are sure not to be disappointed.
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Dividend Stock
It is also known as the yield stock. They are the most preferred stock investment for investors whose main interest is income returns. With a dividend stock, you, as the investor, buy a company’s shares with the aim of obtaining regular dividend income from the company. The dividends are derived by performing the division of the company’s yearly dividends payout by the company’s stock price.
While purchasing shares for dividend income, there are factors that you must put into consideration. They include; the company’s stability, the capability to pay dividends; the rise in dividends through the years, and the dividend yield. Do a proper analysis of the company before buying into its shares for dividends.
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Initial Public Offer (IPO)
It refers to the new issue of company shares. It usually happens when private companies decide to publicize the company. Making your business public necessitates welcoming the public to come to buy shares of the company by creating an IPO. For companies with a new issue of shares, their major concern is attaining a spot in the market of shares.
A company’s shares are classified into three main types; there are ordinary shares, preference shares, and redeemable shares. The shares are further subdivided into other types. Therefore, you can choose which to purchase based on their advantages and disadvantages.
Technology has made access to IPOs easy and has resulted in better performing newly issued shares. The benefits that accrue from investing in a company’s shares are in the share prices. An increase in the share price of the stock would generate profits if you were to sell the stock.
Before investing in a company’s IPO, ensure you have taken the right precaution. Do research on the company and determine the product that they are dealing with. Also, please get to know the company’s product and its potential in the market. Moreover, get a better understanding of what they intend to use the money they are raising through IPO. Know the person who will be running the company, as this gets to show you whether your money will be put to good use, and are assured of great returns.
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Defensive stocks
It comprises shares that specialize in the trade of customer staples. For that reason, in times of crisis; when there is economic downturn, the stock’s value does not diminish. Normally, you can be assured of receiving your constant share of dividends plus constant earnings, notwithstanding the share market’s circumstances.
Defensive stocks are also commonly referred to as non-cyclical stocks, as it consists of businesses, which function in sectors perform well irrespective of the economic state of affairs. Businesses with defensive stocks provide essential commodities; for instance, utilities comprising of water, gas, plus electricity. Consumers will always require such utilities and will go on purchasing food, household goods, plus tobacco.
In times of economic recession, the probability of many people losing jobs, whereas others suffer salary cuts. This drives consumers into a state of savings, but will only save for and direct all their finances to vital commodities. Consequently, the defensive stock’s share price shoots, whereas that of cyclical shares’ price plunges.
Should you choose to invest in defensive stocks, then you can be assured of a sticky demand, where there is a constant demand for your products. However, you can be sure of not experiencing exponential growth or massive dividends from non-cyclical stock. Therefore, minimize investments in defensive stock as businesses tend to do well only in times of recession but will disappoint in times of economic booms.
Conclusion
Portfolio investment is great for diversifying risk. Stocks investment is common. However, get to know your motive for investing in shares so that you can make the right choice of investment. Always be cautious and do a proper company analysis before buying its stock to avoid incurring losses in future.