The basics of Stock Market Investing are that greater short term risks has the potential for greater long-term rewards.
Example, money markets are typically associated with the least potential for investment risk, or the chance that price swings will cause your investment to lose value. As a result, money markets are also likely to provide the lowest long term returns.
Stocks are on the opposite ends of the risks /return spectrum. Stocks generally pose the greatest risks of short term prices volatility and loss, yet stocks have historically provided the highest long term average annual returns.
Govt. Bonds are in the middle, they’re typically less risky than stocks and generate lower returns than stocks, but Govt. Bonds are riskier and more likely to generate better returns than money markets.
Stocks are often the investment of choice for two types of investors’ and to those who are willing to take a big risks in return for a potentially big short-term return, and those willing to tolerate short-term price swings while they pursue important investment goals that are still many years away.
Types of Stocks
Just as there are many different types of companies, there are many different types of stocks. The Stocks Investment are often categorized according to the following descriptions between; small, medium, and large-cap stocks.
The size of a company is determined by its overall stock market value. Another term for overall stock market value is market capitalization, or market cap for short. Stocks issued by relatively small companies are called small cap stocks. Mid cap stocks are those issued by medium sized companies, and large cap stocks represent ownership in the stock markets biggest companies.
In general rules investments in large cap, and growth stocks tend to be less risky, while investments in small cap and value stocks typically carry more risks.
This is because a large, diversified company with a solid track record is more likely to weather rough economic times than a small company that is struggling to generate profits.