The world of investing can seem overwhelming in the beginning. To help clear the air a bit, I will take you through some high-level terms that, taken together, can prepare you to make your own sound decisions that will pay dividends. We will place the market into two categories, Bull and Bear. Then we will do the same by defining our strategy by going over long-term versus short-term strategy. Finally, stocks themselves can be divided into two main categories of common and preferred stock. By the end of this article, you should understand how to choose what stock.
Bull or Bear
Historically, the market holds two trends, up or down. When stocks, throughout the market, are up, it is called a Bull market. Under these conditions, companies’ valuations are steadily increasing over time. This is when you “make money” if you have invested in said companies. A drastic and sustained Bull market can be described as an economic boom. On the other end, when stocks, throughout the market, decrease in price, it is called a Bear market. A drastic and sustained Bear market can be described as a recession. This is when companies, overall, are losing monetary value. By and large, successful investing is connected to the timing of your investments in each of these markets. The timing of your buying and selling is connected to whether your strategy is long or short term.
Long-Term vs. Short- Term
Long-term strategy describes the financial vehicles used when the timeline of your investment goal extends past 1 year. Generally, when you intend to invest for over a year, your investment strategy will become increasingly conservative the longer you hold these investments. This means less volatility which is comforting many investors. On the other hand, short-term strategy describes the financial vehicles used when the timeline of your investment goal lies within a 12-month period. This type of strategy depends on frequent buying and selling stocks, sometimes daily. Short-term investing is inherently more volatile than long-term investing. However, when done skillfully and successfully, the potential increase is far greater than its conservative counterpart.
Types of Stocks
Stocks have many different categories but as I wrote earlier, this will be a high-level view. You can always whittle your strategy to be as specific as you like. Stocks can be divided into two main categories, common and preferred. Both represent ownership in the company. The primary difference between the two is commons stock represents an actual vote in company dealings whereas preferred stock does not. Another difference is preferred stock includes a guaranteed dividend for the life of ownership. There is no such guarantee in common stock. In fact, many companies do not offer dividends under common stock. If dividends or having a vote in the company is important to your investment strategy, take a closer look at this topic.
This article should provide you with an accurate yet broad understanding of how to choose what stock to invest in. Bull and bear are terms that help understand when the overall market is on an uptick or a downtick. Long and short refer to the term or timeline of our investment strategy. Each strategy has its own volatility associated. Lastly, common and preferred, are the two main categories of stock. Each type has its own characteristics. Again, your investment goals determine your strategy, which will influence which type of stock you buy. Combined, this information should provide enough understanding of how to choose what stock. The links provided will also give more detailed information on their respective topic. Click to learn more about investing.