With thousands of different stocks trading
on the U.S. and international securities markets, there are stocks
to suit every investor and to complement every portfolio. For
example, some stocks stress growth, while others provide income.
Some stocks flourish during boom times, while others may help
insulate your portfolio's value against turbulent or depressed
markets. Some stocks are pricey, while others are comparatively
inexpensive. And some stocks are inherently volatile, while others
tend to be more stable in value.
If you buy common stocks, you share directly
in the success or failure of the company. If the company grows
or realizes a profit, your income from the stock may increase,
or the share price may climb. On the other hand, if the company
has a disappointing year, your investment in the company will
probably be disappointing as well. If the company goes bankrupt,
you could lose your entire investment.
Preferred stocks reduce your risk — but also limit potential reward.
The dividends paid on preferred stocks are fixed and guaranteed.
You may even get some of your investment back if the company goes
bankrupt. However, if the company grows or realizes a profit, your
dividends stay the same and the share price increases more slowly
than shares of the company's common stock.
Stocks in large, well-established
companies that have a solid record of increasing profits
and paying dividends are known as
blue chips — after the most valuable poker chips. It's not an official
designation, and the list does change from time to
time.
