When you hear people talk about “buying stocks,” they are almost always referring to common stock. Common stock gives you partial ownership in a company. As a shareholder, you are entitled to a share of the company’s profits (if there are any), and you can also benefit if the company grows and its stock price goes up.

However, common stock comes with risk. If the company goes out of business and has debts to pay, common shareholders are last in line to get any leftover money. That means you could lose your entire investment if the company fails.

On the other hand, preferred stock is a different type of investment that acts more like a mix between a stock and a bond. Preferred shareholders have special privileges:

Preferred stocks often come with fixed dividend payments, which can provide a steady stream of income. Because of this, preferred stock tends to be less risky and more stable than common stock. However, preferred shareholders usually don’t have voting rights in the company, while common shareholders often do.

Example:

Imagine a company is in trouble and only has a limited amount of money left. Preferred shareholders would get paid first, and if there’s anything remaining, common shareholders would get whatever’s left.

Most companies only offer common stock, especially if they’re looking to raise money from regular investors. That’s because common stock offers more potential for growth—and that’s what most investors are looking for.

Another way to sort stocks is by the size of the company. In the stock market, this size is measured by something called market capitalization, or market cap for short. Market cap is the total value of all a company’s shares added together.

Companies are usually grouped into three main categories:

Large-Cap Stocks
These are the biggest companies in the market. They’re usually worth $10 billion or more. Think of companies like Apple, Microsoft, or Coca-Cola.
These stocks are considered safer and more stable because the companies are already well-established.

Mid-Cap Stocks
These are medium-sized companies, often valued between $2 billion and $10 billion.

Small-Cap Stocks
These are smaller companies, usually worth less than $2 billion.

Important Note:

Just because two companies fall into the same size group doesn’t mean they’ll perform the same. One small-cap stock could skyrocket in value, while another could lose everything. That’s why it’s important to research each company on its own.

Example:

Imagine three stores:

All three sell the same products, but their sizes—and the risks of investing in them—are very different.

Stocks can also be grouped based on where the company is located. This leads to two main categories: domestic stocks and international stocks.

1. Domestic Stocks

Domestic stocks are from companies that are based in your home country. If you're a U.S. investor, then stocks from American companies like Walmart, Google, or Ford are considered domestic.

2. International Stocks

International stocks come from companies headquartered outside your country. These companies may be based in places like Japan, Germany, or Brazil.

Where a company is headquartered doesn’t always tell you where it does business.

Example:

Take Philip Morris International—it’s officially based in the U.S., but it sells its products mainly outside the United States. So even though it’s technically a domestic stock, it behaves more like an international one because its customers and profits are from overseas.

That’s why it’s helpful to look not just at where a company is located, but where it makes its money.

Mixing domestic and international stocks can help you build a diversified portfolio. If one country’s economy slows down, your investments in another part of the world might still do well.

Another way to think about stocks is by the type of investing strategy they fit into. Two of the most popular categories are growth stocks and value stocks. These represent two different ways investors try to make money in the market.

1. Growth Stocks

Growth stocks are shares of companies that are growing quickly. These businesses are often increasing their sales, launching new products, or entering fast-expanding markets.

Example:

A technology startup that creates cutting-edge software might be a growth stock. It might not be profitable yet, but if its products become widely used, its stock price could soar.

However, if a new competitor enters the market or sales slow down, investors may lose confidence, causing the price to drop.

2. Value Stocks

Value stocks are shares of companies that appear to be undervalued, or priced lower than what they’re really worth.

Example:

A well-known clothing brand that has been around for decades might fall out of favor if sales slow down. But if the company improves and returns to growth, its stock may climb again—rewarding patient investors.

Key Differences:

Many investors include both types in their portfolios—growth stocks for long-term gains and value stocks for stability and income.

IPO stocks are shares of companies that have recently gone public through a process called an Initial Public Offering, or IPO. Before a company can be traded on the stock market, it has to go through this process to sell its shares to the public for the first time.

When a company completes its IPO, regular investors like you can buy shares and become part-owners of that business.

Many investors get excited about IPOs because they feel like they’re getting in early—before the company becomes big and well known. If the company grows quickly after its IPO, early investors can see strong returns.

But There’s a Catch

While IPOs can offer opportunity, they also carry more risk than established stocks.

Example:

Let’s say a new tech company launches an IPO. Its stock might surge in value on the first day because of investor excitement. But if the company misses its earnings goals or faces unexpected challenges, the stock could drop just as fast.

That’s why many financial experts recommend being careful with IPO stocks. It’s often better to wait and watch how the company performs for a while before investing.

How Long Is a Stock Considered an IPO Stock?

There’s no exact rule, but most investors still think of a stock as an IPO for at least the first year. Some analysts will continue treating it as an IPO stock for up to two to four years, depending on how the company behaves and matures in the market.

Dividend Stocks and Non-Dividend Stocks

Some companies share a portion of their profits with investors. These payments are called dividends, and the stocks that offer them are known as dividend stocks.

What Are Dividend Stocks?

Dividend stocks pay their shareholders regularly—often every three months. The amount paid is usually based on how much profit the company makes.

Even if the dividend is small—like one cent per share—the company is still considered a dividend stock.

Example:

If you own 100 shares of a company that pays a quarterly dividend of $0.50 per share, you would earn $50 every three months just for holding the stock.

What About Non-Dividend Stocks?

Not all companies pay dividends. Non-dividend stocks don’t return profits directly to investors. Instead, these companies keep the money to grow the business by:

This strategy can lead to faster growth and a rising stock price, which could give you a return if you sell the stock at a higher price later.

Some of the world’s most valuable companies—especially in the tech industry—don’t pay dividends. Instead, they reinvest in themselves to drive future growth.

Which Type Is Better?

It depends on your goals:

Many investors choose to mix both types to build a balanced portfolio.

Income stocks are stocks that are chosen mainly for the steady cash payments they provide. These payments come in the form of dividends, which are usually paid out every quarter. While all income stocks are dividend stocks, not all dividend stocks are considered income stocks.

What sets income stocks apart is that they belong to companies that are generally mature and stable, with slow or limited growth potential. These companies may not be expanding rapidly, but they generate enough profit to reward their shareholders consistently.

Why Do People Invest in Income Stocks?

Income stocks are popular with investors who want to earn regular money from their investments—especially people who are retired or nearing retirement. They’re not looking to take big risks. Instead, they want a dependable source of income to help pay living expenses or supplement savings.

Example:

Utility companies, like those that provide electricity or water, are classic examples of income stocks. They may not grow quickly, but they typically pay consistent dividends year after year.

Who Are They Good For?

By owning income stocks, you’re investing in companies that focus more on rewarding shareholders than expanding quickly.

Some companies do really well when the economy is strong—but struggle when things slow down. Others tend to stay steady no matter what’s happening. This is where the terms cyclical stocks and non-cyclical stocks come in.

These categories help investors understand how sensitive a stock is to the ups and downs of the economy.

Cyclical stocks are shares of companies that follow the rhythm of the economy. When the economy grows, these businesses often grow fast. But when the economy weakens or falls into a recession, they tend to drop in value.

Industries with cyclical stocks include:

These are things people spend money on when times are good. But when money is tight, people usually cut back on them.

Example:

An airline company might see profits surge when more people are vacationing and flying. But during an economic downturn, when people travel less, that same company could lose money—and its stock price may drop.

Cyclical stocks can be great investments during a bull market (a time when stock prices are rising), but they can also fall quickly when the economy slows down.

Non-cyclical stocks are also called defensive stocks or secular stocks. These belong to companies that sell things people need all the time—no matter what the economy is doing.

Industries with non-cyclical stocks include:

These companies usually experience more stable demand, so their stock prices don’t rise or fall as sharply with the economy.

Example:

A supermarket chain will likely continue selling food whether the economy is booming or in a recession—because people still need to eat.

That depends on your goals and the state of the economy:

Many investors include both types in their portfolios to help balance risk and opportunity.

Safe stocks are stocks that don’t swing up and down as much as others. They are also called low-volatility stocks because their prices tend to stay more steady, even when the rest of the market is moving a lot.

These stocks usually belong to companies in industries that people rely on no matter what the economy is doing. Think of them as the calm in the middle of a storm. While other stocks may rise or fall quickly, safe stocks often move more slowly and predictably.

What Makes a Stock “Safe”?

Examples of Safe Stock Industries:

Example:

A company that provides drinking water might not be exciting or fast-growing—but it’s very reliable. No matter what’s happening with the economy or the stock market, people still need water. That makes this kind of stock more stable and less risky for investors.

Who Should Consider Safe Stocks?

Safe stocks usually don’t offer huge returns, but they can help limit losses when the market drops. Many investors use them as the foundation of a well-balanced portfolio.

Another way to group stocks is by the type of business a company is in. This is called a sector. The stock market is divided into sectors to help investors compare companies that operate in similar parts of the economy.

There are 11 main sectors, and each one includes different industries and companies that share a common purpose.

1. Communication Services

Includes telephone companies, internet providers, media networks, and entertainment platforms.
Examples: Verizon, Netflix, Disney

2. Consumer Discretionary

Includes businesses that sell non-essential goods and services—things people want but don’t necessarily need. These sales often rise when the economy is strong.
Examples: Nike, Amazon, Starbucks

3. Consumer Staples

Includes companies that sell essential products people use daily, such as food, beverages, and household items.
Examples: Procter & Gamble, Coca-Cola, Walmart

4. Energy

Covers oil, gas, and energy services companies. These businesses explore, produce, and distribute energy resources.
Examples: ExxonMobil, Chevron

5. Financials

Includes banks, mortgage lenders, insurance companies, and financial services firms.
Examples: JPMorgan Chase, Bank of America, Goldman Sachs

6. Healthcare

Involves drugmakers, medical device manufacturers, hospitals, and health insurance companies.
Examples: Johnson & Johnson, Pfizer, UnitedHealth Group

7. Industrials

Covers companies involved in transportation, construction, defense, and manufacturing.
Examples: Boeing, Caterpillar, FedEx

8. Materials

Includes companies that produce raw materials like metals, chemicals, packaging, and construction supplies.
Examples: DuPont, International Paper, Newmont Corporation

9. Real Estate

Consists of companies that develop, own, or manage properties. Many are structured as REITs (Real Estate Investment Trusts), which often pay dividends.
Examples: Public Storage, Simon Property Group

10. Technology

Includes companies that create hardware, software, and digital services. These are often growth-focused businesses.
Examples: Apple, Microsoft, Nvidia

11. Utilities

Includes companies that provide electricity, natural gas, water, and renewable energy. These are often considered safe and steady investments.
Examples: Duke Energy, NextEra Energy

Organizing stocks by sector helps investors:

Example:

If you think the future of technology looks bright, you might invest more in the tech sector. But if you want stability, you might focus on consumer staples or utilities instead.

ESG stocks are investments in companies that focus on more than just making money. ESG stands for Environmental, Social, and Governance—three areas that many modern investors care about when deciding where to put their money.

This kind of investing looks at how a company treats the world, its people, and how responsibly it is managed.

Some investors also talk about Socially Responsible Investing (SRI), which is related to ESG. The main difference is:

Example:

You might invest in a company that builds electric cars, not just because it might grow, but also because it helps reduce pollution.

Blue chip stocks are shares of companies that are known for being large, strong, and reliable. These companies are leaders in their industries and have a long history of steady performance, even during tough economic times.

The name “blue chip” comes from the game of poker, where blue chips are the most valuable. In the stock market, blue chip companies are considered some of the most valuable and trustworthy investments.

What Makes a Stock a Blue Chip?

Blue chip companies often dominate their markets and are considered safe choices for long-term investors who want stability and income.

Examples:

These companies may not have the biggest short-term gains, but they’re known for their consistency. Investors trust them to grow slowly and steadily over time.

Who Are They Best For?

Blue chip stocks are ideal for:

Even though blue chip stocks can still lose value, they’re generally seen as some of the safest investments in the stock market.

Penny stocks are shares of very small companies that trade for extremely low prices—often under $1 per share, though some definitions stretch that to under $5. These stocks are usually traded outside of major stock exchanges, often on smaller markets or over-the-counter (OTC) systems.

At first glance, penny stocks might look appealing. Their low prices can give the impression that you can buy a lot of shares for just a little money—and maybe make a big profit if the price goes up.

But Here's the Truth

Penny stocks are extremely risky and are often considered speculative investments. Many of the companies behind these stocks:

Because of this, penny stocks can be targets for scams and manipulation, like “pump-and-dump” schemes where the price is artificially inflated and then quickly collapses.

Example:

You might buy 1,000 shares of a company at $0.50 each for a total of $500. If the price doubles to $1, you’d make $500 in profit. But if the company goes bankrupt or the price drops to $0.10, your investment would lose most of its value—and maybe all of it.

Who Should Avoid Penny Stocks?

Some experienced traders use penny stocks as high-risk bets, but most financial experts recommend avoiding them unless you truly understand the risks and can afford to lose what you invest.