4 Types of Stocks to Diversify Your Investment - Parthian Securities - Your Smart Brokerage Firm

As you progress on your investment journey, it is important to hold the best cards to ensure your portfolio is balanced and you earn well as an investor (investor vibes). Not only is investing a great way to earn passive income but you are making essential money moves by not leaving your savings in a bank account to wallow and depreciate.

Of all the very many classifications of stocks, these four are important types to own to protect you from the inevitable waves of the market. Whether you are new to investing, an OG or somewhere in between, a balanced portfolio is good for the pocket so here are four types of stocks that every savvy investor should own:

1. Growth stocks

These types of shares are bought for the growth of your capital, irrespective of the dividends they pay and these are bought from a company with high growth potential. These are usually found in industries that capitalise on consumer trends and therefore see sales and profits rise quickly.

Growth stocks are shares in companies that are generating positive cash flows and whose earnings are expected to grow at an above-average rate relative to the market. Investing in growth stock carries greater risk as competition between similar companies can be fierce and even a slight slow in growth can reduce investor confidence leading to a reduction in share prices.

For the best growth stocks, be sure to research successful businesses that tap into strong and rising demand among customers, especially in connection with longer-term trends that support the use of their products and services.

2. Dividend stocks

Dividend stocks also called yield stocks are those that pay a certain income periodically. The amount paid will depend on how many shares you own. Dividend stocks are a type of passive income and one of the most popular types of stocks that people invest in due to the money that constantly trickles in. When looking for which stocks pay dividends, look for yield and look for stability in the core business. Many stocks make dividend payments to their shareholders regularly.

3. Cyclical Stocks

As you have no doubt noticed, the economy of Nigeria is on a proper rollercoaster, I mean an amusement park standard. National economies sometimes display a cycle of prosperity and recession, expansion and contraction. Some businesses are more affected by this cycle than others. These are companies that depend on economic prosperity to flourish such as tourism, travel, luxury goods and manufacturing. They have highs and lows and investors, therefore, refer to them as cyclical stocks.

Economic downturns can reduce the ability of customers to make major purchases quickly but when there’s an economic high (bull markets), investors rush these companies causing them to regain their profit margin quickly, this makes these stocks good to have in your portfolio.