From blue-chip stocks to speculative stocks, there’s something for every investor based on comfort level and desired outcome. Some stocks come with high levels of risk but offer investors the opportunity to double or triple their return in a short time. Other stocks are expected to gradually rise in value while paying out a very stable dividend. And then there’s everything in between.
There is no single formula to determine what stock types should be bought by investors. Younger people are more often able to absorb losses from higher-risk stocks because they are decades away from retirement. On the other hand, investors close to retirement age may want to protect their money at all costs because a large loss could be devastating to their retirement fund. Conversely, a young investor may have limited financial resources as well as near-term financial objectives (e.g., down payment on a house) that would make risky investments untenable. Moreover, someone older and more established may be in a better position to absorb investment losses.
Here is a breakdown of various stock classifications:
Obviously, investors are not bound to limit their choices to a single category of stocks. The composition of their portfolio can easily accommodate a whole slew of securities provided that its allocation respects their degree of risk tolerance and the investment objectives they set for themselves.
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