By Emily Roberts
For the Financial Independence Hub
Following a challenging year for us all, we are confident that those reading this and beyond are more than happy to see the back of 2020. As we make our way further into 2021, the pandemic’s impacts are beginning to show themselves more, and we can see the different ways that the pandemic changed our lives in some way or another.
Financially, the last year has been one of the toughest that many of us have ever faced. A large majority of the world population experienced the economic crash of 2008 but have stated that the last year has been similar in some elements but drastically different in others. It is no surprise that experts have estimated that the pandemic’s financial impact across the globe is set to be much worse than that felt back in 2008.
As a result of this, there is little surprise that people are searching for ways that they can be more economic themselves, and how they can improve their current situation. We are seeing more and more people monetizing on their existing skills in every direction, creating a small, online business selling some type of arts and crafts or baked goods.
While these are certainly effective ways of boosting your income following a set-back, this is not the only avenue available to those searching for a side hustle. With an increased interest in the world of cryptocurrency as of late, and with a 350% increase in how many Google searches have been made into Bitcoin, there undoubtedly appears to be an interest in investing our money.
If you are interested in finding out more about investing your money moving forward and the different stock types to consider when exploring this world, you are in luck! Detailed below is a helpful list of the best stock types to consider in 2021. Read on for more.
Before deciding to invest
Particularly when exchanging money, you want to make sure that you have put some thought into this. The last thing that you want to do when attempting to boost your income is to put yourself into any sort of financial difficulty.
Those who are clued up on all thing’s stocks are probably aware that there is risk involved in investing in stocks. But for those who are not, this is one thing that is well worth considering before jumping into this world.
By ensuring that you correctly understand the ins and outs of what you are getting yourself into, you can rest assured that you will be moving money around in a safe manner.
It is worth noting that investing in stocks takes some time and patience; you will not see the results overnight, so it is worth monitoring over time. On that note, let’s get to the main event: what types of stock exist.
Different Stock Types
- Common Stock: As the name here suggests, this is the most common type of stock that exists and which you can invest in. Common stock is an ideal stepping-stone into the world of investment and is suitable for those who are first starting out on their investment journey and building up a portfolio. When you invest in a common stock, you own a share in the stock and in the company’s profit as well. Those who choose to invest in a company through common stock can also expect to get the ability to vote on the company policy and anything else of importance that requires shareholder’s input.
- Preferred Stock: This type of stock is often compared to bonds. Unlike common stock, preferred stock pays investors a fixed dividend, whereas the common stock offers investors the opportunity to earn dividends, but these are not guaranteed. Preferred stock is an ideal choice for those looking to invest in something while prioritizing income rather than any sort of long-term growth. Much like that of common stock, those who invest in a company’s preferred stock can vote on matters involving shareholders but are also given more preferential treatment. What’s more, if a company is to go into liquidation or declare bankruptcy, those who own preferred stock are returned their dividends before those who have common stock.
- Mining Stocks: Unlike other aspects of the investment world, this may well be a term that not many people are aware of. That said, these are also stocks worth investing in during 2021. More so when wanting to boost your income. Much like our other suggestions, it is advised that those interested in investing into these particular stocks do adequate research levels first. Mining stocks have multiple elements to them, and these are known as either major or junior mining stocks. Major mining stocks are known to work in a similar way to that of blue-chip stocks. On the other hand, junior mining stocks are akin to penny stocks. To learn more about mining stocks and how you can go about investing into this particular type of stock in 2021, check out the guide created by Wall St Now on their website.
- Blue Chip Stock: Following its brief mention previously, we thought it best to explain further what we mean by Blue Chip Stock and why it is one of the best stocks to invest in as we head further into 2021. Blue Chip Stock investors can expect to experience relatively low risks regarding their investment into a business. Companies that allow the opportunity to invest in Blue Chip Stocks are generally considered leaders in their industry. With strong reputations regarding products and services, those who choose to invest in this particular stock can rest assured that they will receive some sort of pay-out at some point.
- Cyclical Stocks: Another term those outside the investment world may be unfamiliar with, but another excellent type of stock worth investing in when wanting to make some profit in 2021. Cyclical stock is also known as equity stock and is generally used in businesses and companies that are manufacturing certain goods; this can include cars, houses, and other equipment. Generally speaking, we pay for necessary goods like food and drink on at least a weekly basis. We don’t tend to put a second thought into these purchases, and it is something that we need and therefore pay for often. Cyclical stocks rise and fall in value based on the ups and downs that come with being a business and any external influence. Think of economic crises – much like what we have seen in the last year – as well as economic booms. To make a profit through cyclicals, you would need to purchase a stock in a company during a time when the price is at its lowest. This could be during an economic crisis, so it is certainly worth considering at a time such as the present. To make a profit, simply sit with your investment and be patient until a time when the price has risen, during an economic boom. When investing into cyclical stocks, one thing that should be considered is that during times of recession, the investment you have made could be regarded as worthless. So, make sure to do your research before making the jump.
- Defensive Stocks: While on the topic of investment during the recession, our attention turns to the world of Defensive Stocks. Another suggestion for those looking to invest in 2021 is an ideal suggestion on the off chance that we enter another recession in the future. While the hope is that this is not the case, there is nothing wrong with being prepared and knowing how you can help yourself get through a particularly tough time such as that. Defensive stocks are one of the few that exist which are not affected by external factors such as a recession. These types of stocks can generally be found within larger, more solid corporations that dominate the country, including the likes of Walmart and other chains. In Layman’s terms, defensive stocks are resistant to the effects of the economy and the constant up and downs that other stocks may experience. Those who choose to invest in stocks such as these can expect to make money during a recession; as people spend less money on more significant purchases like cars, houses, and other items of value, they tend to spend their money on smaller and cheaper items. If spending any money at all, that is.
When considering the available avenues to you as a prospective investor, it is also crucial that you look at the options available to you, which may lie slightly further afield. While you can categorize stocks based on their dividend return rate and by how risk they are, there are also other ways that you can organize available stock options, including by location. This leads us to the following point:
- Domestic Stocks: No, this is not stock that relates to the domestics of a home, though you are thinking along the similar lines of what it does mean. Domestic Stock is stock that can be invested in the country in which you live. If you are American, domestic stock relates to the stock that you can invest into that is based in the United States; for Canadians, domestic stock refers to Canadian equities. This slightly differs from that of International Stock, which we will discuss below. While there are similarities and differences between both these stocks, they are worth researching and considering when searching for ideal stocks to invest in this year.
- International Stocks: Much like the name suggests, these are stocks related to the global business world, outside North America. That said, they are not quite as straightforward as the name implies. Particularly when considering the presence of many multinational corporations, investors will look at their headquarters’ location rather than the area where most of their sales occur. Unlike domestic, it can be challenging to differentiate whether a company is entirely international or not or whether it gives off that impression through its presence and branding.
With the opportunity to invest in stocks around the globe, the world truly is your oyster! You are spoiled for choice when narrowing down exactly what companies you want to own shares in. For those who want a slow introduction to the world of investment and who are a bit apprehensive, the next suggestion is ideal.
- Safe/Low Volatility Stocks: Again, this one is very much in the name. Safe stocks are considered to be just that: safe. Safe stocks are known to be prevalent in markets that do not experience a lot of movement. There is very little increase or decrease in price compared to the broader aspects of the stock market. Safe stocks could be found in the same or similar industries as those of defensive stocks, for the financial world and external factors do not generally impact them. Those who invest in safe stocks can also expect to be met with periodic dividends paid to them, which are perfect for getting you through tough times financially while also making up the difference of your share price if and when it falls.
- IPO Stocks: Finally, this last suggestion is another ideal one for those who are just beginning to set out on their investment journey. IPO Stocks become readily available, following a process that businesses go through to make their stocks public. IPOs can allow existing and prospective investors to put money into companies that they feel will have value in the future. If you have created a company that appears to have promising potential moving forward, then consider making it public to investment. You are sure to have plenty of interested parties, and it will enable you to continue developing and growing as you move forward.
We hope that this guide to the best types of stocks to invest in has been insightful and engaging and that you are leaving with a better understanding of the different types of stocks that exist on the markets. Go forth with confidence that you will be making a profit on your investment and have fun while at it!
Emily Roberts is a young writer who is passionate about literature and blog writing.