How to invest in stocks
How to invest in stocks

If you want to know how to invest in growth stocks, value stocks, penny stocks, dividend stocks, blue-chip stocks, large-cap stocks, and small-cap stocks, then look no further as in this article, I will explain how you can invest in them.

Growth Stocks

Growth stocks have the potential of outperforming the market, and that is why many investors are attracted to them. Investing in this stock would grab you more money than by investing the same amount into the S&P 500 stocks.

Having said that, just remember that every other investor is looking for the best results. They would want to invest in that stock that will earn them good profits.

Whenever an investor identifies a likely growth stock and buys it, the price of that stock rises. This in turn makes the growth difficult.

For example, at $10, if the price of growth stock increases by $1, then the stock has achieved a 10% growth. On the other hand, if that stock is priced higher than $10, then this means that a $1 increase in the price will lead to less than 10% growth.

Choosing the right growth stock to invest in is very important. You mustn’t invest in that growth stock that has been identified by professional investors.

This is because buying that stock won’t fetch you good returns, and what’s more, if that stock gets overvalued, you will be in a loss.

Before investing in a growth stock, always take advice from an experienced financial advisor.

Value Stocks

Value stocks are termed as stocks that have the potential of trading at a lower price relative to their fundamentals, such as sales, earnings, or dividends.

Investing in these stocks mostly means that you have to be patient because you won’t get rich overnight by investing in them.

Identifying the ideal value stock to invest in is not an easy task. After all, everyone would buy an undervalued stock, and when this will happen, there will be a rise in price, and the stock won’t remain undervalued.

Having said that, finding the value stock that trades at a lower price than its intrinsic value, and is recognized by a few people will make you an effective value investor.

Value investing principles can help you in finding value stocks that are worthy of investing.

Penny Stocks

A stock whose shares usually trade for less than $5 per share is known as a penny stock. Penny stocks are shares of small companies. Now, if you want to invest in penny stocks, then you need to be aware of a few things so that you avoid loss.

Before investing, take your time to research everything related to the company. Learn about the expenses, profits, earnings and many other details of the company. Researching the company is important because some companies will over-promise, and later on, will deliver low returns.

Look for penny stocks that have the potential to trade at around 100,000 shares per day. Doing this will mostly help in selling the stocks.

Consider companies that perform consistently and have a strong earnings record.

To avoid conflict of interest, make sure you carefully read the disclaimers in newsletters, emails, etc. that company uses to promote the stock.

If you are left with using emergency funds to invest in penny stocks, then don’t invest because penny stocks are risky. Always prefer using your discretionary income to invest in penny stocks. 

Dividend Stocks

Dividend stocks are companies that regularly distribute a share of their earnings to investors as dividends. Now, since we have an idea about dividend stocks, let’s understand how to invest in dividend stocks.

Before investing in dividend stocks, you need to identify stocks that pay dividends. 

After identifying the stock that pays dividends, you will need to evaluate that dividend stock. To evaluate dividend stock, you will need to look at the dividend yield. 

The dividend yield is defined as how much dividend the company is willing to pay compared to the stock’s price.

To get an idea about which dividend yield is good,  compare the stock that you chose with some other similar dividend stocks. Prioritize the dividend stock that offers more dividend yield.

Blue Chip Stocks

Blue-chip stocks are shares of well-established companies. These are companies that have solid financial reputations with dependable earnings. 

Now, before investing in blue-chip stocks, other than doing your research on the best companies, it is advised that you seek a financial advisor.

Analyze the performance of the companies for the last decade so that you get aware of the reported earnings and dividend payments trend.

Analyzing will better help understand the performance of companies during the boom and bust cycles. 

After you have done all of this, considering choosing the blue-chip stock that stood out best among all.

Large-Cap Stocks

Shares of a company having a market capitalization of $10 billion or more are called large-cap stocks.

Just like blue-chip stocks, large-cap stocks are shares of well-established companies. 

Compared to other equity investments, large-cap stocks are considered less risky. This doesn’t mean you invest in any large-cap stock without analyzing its fundamentals and doing proper research.

Before investing in large-cap stock, just like blue-chip stocks, you need to do proper research on it. To shortlist high-quality large-cap stocks, you can use filters.

To invest in several large-cap companies at the same time, use mutual funds. You must do some research, but the diversification that you will get by using mutual funds will further reduce the risk linked with such investments. 

Small-Cap Stocks

The stock of a publicly-traded company with a market capitalization ranging from $300 million to $2 billion is called a small-cap stock.

Now, if you want to invest in small-cap stocks and come out successful, then invest when the market opportunity is big. The sheer size of the markets opens the door for handsome gains while reducing your risk profile.

Research well on small-cap stocks and invest in the ones that show the best results before big investors invest in them. It’s like robbing the train before it reaches the station.

You should prioritize companies that have institutional ownership of less than 50%. The idea here is that the value of the stock will rise through subsequent investments by institutions. 

Bottom line

I can’t cover everything in one single page, but please do check other pages for more detailed information on each of the categories.

Having said that, if you are planning on investing in any of the above-mentioned stocks, then to make it a successful investing experience, always remember the points that I raised in each stock.