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July 5, 2018

Types of Investments

Financial Freedom (an ongoing series)

Types of Investments - This is where the rubber meets the road.

There are many types of investments. As Clausen says in 7 Cures of a Lean Purse: "Know about that in which you invest."

Different investments carry different risks and separate returns. You want to make sure that the investments you make are "suitable" for you. Where you are in life and your tolerance for risk?

Remember that there are two ways to invest...owning and loaning.

Stock in a Corporation - Owning stock in a company owns a piece of the company. There are different types of capital.

Common Stocks - Equity Position

1)"Blue Chip Stocks" - These are high grade, investment quality issues of major, well-established companies that have long records of earnings growth. These companies also have long records of dividend payments during all phases of the business cycle. The result is income and growth. Examples include IBM, General Electric, and Xerox.

2)" Penny Stocks" - These are usually new, start-up companies with no track record. They pay no dividends, and the commissions to brokers who sell them are usually high. They represent "gambles" and not investments.

3)"Growth Stocks" - Typically the stock of a company that is growing faster than the general economy. Most of the earnings are reinvested in the areas of research and development and expansion. This being the case, they pay relatively small or no dividends at all.

4)"Income Stocks" - These are stocks that pay high current income. Examples would be utility company stocks.

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