Stocks

"Research shows that owning stocks of as few as a dozen large companies in different industries can offer you the benefits of diversification."

- Nancy Lloyd, author of
Simple Money Solutions

The most basic definition of a stock--equity ownership in a company--doesn't begin to explain the myriad variances among different types of stock. The following is a primer to help you differentiate one type from another:

Common Stock: the basic definition that refers to owning equity in a company.

Initial Public Offering (IPO): the first time a stock is available to be sold to the public, generally to help generate assets to finance the company's growth.

Growth Stock: stock of a company whose management focuses on growth through the reinvestment of any earnings versus paying them out in the form of dividends to shareholders.

Preferred Stock: a special category of company stock that typically pays its holders a higher dividend than common stock and affords them certain voting privileges.

Convertible Stock: preferred stocks that may be converted into common stocks.

Value Stock: also known as under-valued stocks that trade at a lower price than the company's reputation, earnings outlook, and financial situation would seem to merit. Most value stocks pay out greater profits to shareholders in the form of dividends than do growth stocks.

Investing Tidbit:

In the past 31 years, there have been only 6 years of negative total returns, including dividends, and 25 positive years.

Source: The Million Dollar Car and $250,000 Pizza (by Allyson Lewis, Dearborn Trade, 2000)

Page 4 of 10: Different Asset Classes

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